Payday lenders will be forced to carry out affordability checks and will only be able to roll over loans twice under plans for a clampdown announced by the City regulator.
The Financial Conduct Authority (FCA), which will oversee the consumer credit market including payday firms from next April, unveiled a proposed set of rules which will see tougher action on payday firms.
Restrictions will also be placed on the number of recurring payments payday firms are allowed to collect following complaints that they are unexpectedly draining borrowers’ bank accounts of cash, and the FCA has promised to ban any adverts that are misleading.
Under the FCA’s proposals, payday firms will only be able to make two attemptsto use a type of recurring payment called a continuous payment authority (CPA)to have a loan paid off.
Information on where to get free help with debts must be given to every borrower who rolls over a loan and “clear risk warnings” must be displayed on all adverts and promotions along with details of debt advice.
Martin Wheatley, the FCA’s chief executive, warned firms that “the clock is ticking”.
He said that while payday lending “has a place”, loans must only be offered to those who can afford them.
Mr Wheatley said: “Today I am putting payday lenders on notice: tougher regulation is coming and I expect them all to make changes so that consumers can get a fair outcome. The clock is ticking.”