New rules for payday lenders and other firms offering high-cost, short-term credit have been brought in by the financial regulator.
Where borrowers cannot afford to pay back a loan many lenders will allow them to ‘rollover’ or extend the loan. The Financial Conduct Authority (FCA) is concerned that loans which are repeatedly rolled over can lead to an unsustainable debt burden for borrowers so rollovers are now limited to two.
Before rolling over a loan, lenders will also have to give the borrower an information sheet that explains where and how to get free debt advice.
Firms offering high-cost, short-term credit must now include a prominent risk warning on all financial promotions.
A continuous payment authority (CPA), also known as a ‘recurring payment’, is where a business has permission to take a series of payments from a customer’s debit or credit card. Payday lenders are now limited to two unsuccessful attempts to use a CPA to take a repayment and cannot use a CPA to take a part-payment.
However, the borrower will be able to ‘reset’ the CPA following two unsuccessful attempts to use a CPA, when the agreement is rolled over or refinanced.
There are similar rules for loans that are to be repaid in instalments and strict conditions around resetting a CPA, to ensure customers remain in control of their finances.
Commenting on the new payday lending rules, Caroline Rookes, CEO of the Money Advice Service, said: “We are pleased that the FCA is taking a tougher stance on rollovers of payday loans, but with two rollovers still allowed, they continue to pose a threat to consumers.
“If you’re struggling with unmanageable debt and your lender suggests you rollover your payday loan, you should say no, seek debt advice and agree a repayment plan that you can afford with the lender.
“If you don’t know where to turn for debt advice, the Money Advice Service has a brand new Debt Locator Tool at www.moneyadviceservice.org.uk/debt, which will help you locate high quality online, phone and face-to-face debt advice in your local area.
“There are always alternatives to payday loans available. Our Payday Loan Advice tool can help you to find alternatives – since it launched on April 1, over 15,000 people have used it every month.”
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