UK banks face call to 'clean up' credit market
on 14/10/2013 08:50:06
The payday lending industry, which will come under tougher regulation next year, has come under heavy criticism in recent months for encouraging people to roll over their debts so that the original cost balloons.
But new research from consumer group Which? found that going overdrawn can be as "eye-wateringly" expensive as taking a payday loan and, in a similar way to rolling over a payday loan, people can rack up "sky high" default charges if they slip into an unauthorised overdraft.
Which? found that borrowing £100 for 31 days will cost £30 with a Halifax authorised overdraft or £20 with some Santander accounts, while borrowing the same amount for around a month with a payday loan firm such as Quickquid or Wonga costs between £20 and £37.
Which? wants to see new regulator the Financial Conduct Authority (FCA), which will oversee the consumer credit market from next April, cracking down on poor lending and unscrupulous practices across the market.
The FCA recently announced a raft of measures it plans to impose to improve the whole consumer credit market, including limiting the number of times payday lenders are allowed to roll over loans to two and forcing them to put "risk warnings" on their advertising.
Before a payday firm agrees to roll a loan over, it will have to explain to its customer how the costs will escalate and give free debt advice under the FCA's plans.
The £2 billion sector is currently under investigation by the Competition Commission, which is due to give its findings next year.
Which? is calling for the FCA to ban excessive charges across the whole consumer credit market so that default charges reflect lenders actual costs. It also wants to see a cap on default charges.
It is urging tougher affordability checks and wants an end to lenders making unsolicited increases to people's credit limits.