The parliamentary Business, Innovation and Skills Committee has reported that further action on payday lending is needed to protect consumers.
Recent research by Ofcom shows that payday loan advertising is prevalent on children’s television. The Committee calls for such adverts to be banned from all children’s programmes.
Adrian Bailey MP, chair of the Business, Innovation and Skills Committee, said: “The Money Advice Service suggests that 1.2 million people plan to take out payday loans to cover the cost of Christmas. The evidence we heard suggests they should think very carefully before doing so. Inadequate affordability checks, unacceptable targeting and inappropriate use of rollovers all are symptoms of a payday loans sector in urgent need of overhaul.
“The rapid expansion of the payday loan sector has been accompanied by a significant increase in the number of people experiencing serious debt problems. The two are not unrelated. It is clear that consumers are increasingly at risk from payday loans.
“The number of payday loan adverts seen by 4-15 year olds has increased from three million in 2008 to 596 million in 2012. This means that last year the average child was exposed to 70 payday loan adverts. It is worrying that our children are being exposed to such an extent to adverts that can present payday loans as a fun, easy and appropriate way to access finance. Children’s programs are simply not an acceptable place for payday loan adverts.”
The Committee’s recommendations include:
Affordability tests and real-time data sharing
- All payday loan companies should be required to resubmit their affordability tests to the FCA for approval before they can continue in the sector
- The FCA should make clear that if real-time data sharing has not been established by July 2014 it will mandate its use as a condition of trading in the sector
Roll-overs and continuous payment authority [CPA]
- A limit should be set of one roll-over per payday loan
- Payday lenders should be required to give three working days notice before using a continuous payment authority [CPA] and each notice should set out the right of a customer to cancel the CPA
Advertising
- ‘Health warnings’ should be subject to the same requirements for prominence as APRs and the ‘health warning’ should be repeated at every stage of the application process
- The FCA should discuss with the Information Commissioners Office how texts on payday loans could be disaggregated to identify the extent of bad practice. If this evidence base demonstrates inappropriate targeting or marketing, the FCA should move to ban all brokering of payday loans through email, texts and other personal mobile devices
Debt advice
- When payday loans come under the authority of the FCA, they will be subject to a levy. This should be ring fenced by the Money Advice Service solely for the funding of front-line debt advice services.