Despite the red top newspapers reporting the premature demise for payday loans, Consumer Affairs Minister Ed Davey has said he wants to focus on addressing the problem of continuous payment authority by improving the industries own code of conduct and introducing transparency rather than look to bring in more legislation which may drive some lenders out of business.
“It is really important that we get it right. People do need this money and you have got to remember some of these payday lenders offer a very good service for people. To say all payday lenders exploit people would be wrong.”
One area of payday loans the Consumer Minister does want to address is the right of the payday lender to automatically take money from the customers bank account – the practice known as continuous payment authority.
He believes customers should have the right to cancel continuous payment authority which had caused problems in the past for some borrowers.
While leading payday lenders have made it known they are more than happy to be more open about its use of continuous payment authority by giving customers other options to repay their loan they are less than happy about banning rollovers – the practice of only paying the interest at the end of the month and rolling the loan on for a further term.
In the America some States have banned the practice altogether while most of the others have limited the number of times a customer can rollover but many lenders in the UK who also operate in America believe the laws in the US haven’t worked.
Caroline Walton, president of the Consumer Finance Association, told the Financial Times:
“By limiting a rollover what you can actually be doing is forcing the customer to go to an alternative that might be worse for them,” she said. “It is important that if somebody has rolled over, then you sit down with the customer to examine why they’re doing this and if they need any further help.”
She also had a word of caution for Ed Davey when she pointed out that despite the negative press currently doing the rounds, many consumers actually liked payday loans because they were a far cheaper option than forking out the banks expensive unauthorised overdraft fees.
“We wanted competition against the banks, we’ve got competition against the banks in the form of the payday loan, and now there’s an outcry that it’s too expensive – and yet it’s cheaper than the banks,” she told the FT.
While it is clear the pressure is on for Ed Davey to do something he’s shown in the past that he is loathe to remove consumer options.
Ammending the industries own code of practice looks the way to go and most of the leading lenders like Quick Quid, Payday Kong, Speed e Loans and Payday Bank have all expressed a willingness to more transparency within the industry to help remove the odd bad apple.
Speed e Loans CEO Gary Miller-Cheevers even went as far as backing an interest rate cap as called for by MP Stella Creasy but it was interesting any mention of that was missing from the various interviews given about payloans by Ed Davey over the last few days.
Source: The FT