Payday Loan Regulatory Bodies

Few regulations exist in relation to payday loans...

In the UK, a consumer credit licence, issued by the Office of Fair Trading (OFT), is required by a company before it is permitted to offer payday loans. Other than the need for a consumer credit licence, few regulations exist, currently, in relation to payday loans. As a result, an increasing number of commentators are calling on the government to introduce legislation to curb the worst excesses of the payday loan sector, in particular, very high interest rates and rolling over of loans.

Voluntary Payday Loan Regulatory Bodies

The IPA has lobbied to set up a body to regulate all companies...

The British Cheque Cashers Association (BCCA) is one organisation that has drawn up a Code of Practice for its members. This code of practice strongly discourages the excessive rolling over of payday loans, in particular. However, it should be noted that membership of the BCCA is voluntary and is available only to high street payday lenders. The growing internet-based payday lenders' sector is not covered by this code of practice at all.

The Insolvency Practitioners' Association (IPA) is another organisation that has expressed concern about payday loans. The IPA has lobbied the government to be allowed to set up a body to regulate all companies, except FSA-regulated financial institutions, which offer loan services. The IPA has made proposals to set up a scheme which includes the award of a 'kite-mark' to high quality, fair loan products.

Payday Loan Regulations

Loan providers do not run credit checks...

Even though relatively few regulations apply explicitly to payday loan providers, these companies are still required to abide by the same rules that apply to the advertising of other financial products. Most advertisements offering loans must display the Annual Percentage Rate of interest (APR). The APR must be clearly shown in an advertisement if:

• the advertisement makes comparisons with other financial products;
• the advertisement offers incentives such as cash-back or free gifts;
• the advertisement mentions poor credit history, arrears or county court judgements (CCJ) in its advertising pitch.
• High APR

In addition, the APR must be displayed more prominently and in larger type than the information about comparisons or incentives.

Because the APR associated with most payday loans is high compared with other financial products, some payday loan providers attempt to conceal the true APR of their products. Payday lenders have been advertising on social networking websites such as FaceBook in an attempt to target young, naive consumers. Many of these advertisements have been contrary to consumer protection regulations because of their lack of candour regarding the APR of the payday loans on offer and even the true identity of the lender.

Future Payday Loan Regulation

Current climate of tight credit availability...

Although payday loans are relatively lightly regulated at present, they are likely to continue to remain under review, particularly in the current climate of tight credit availability throughout all areas of the financial markets.