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Possible Advertising Ban for Short Term Loans

Written By On 02/07/2013

The Financial Conduct Authority who will be taking over from the Office of Fair Trading as the payday loan watchdog in April 2014, has forecast that it might enforce an advertising ban for payday loan companies.

FCA Chief executive Martin Wheatley attended the summit meeting yesterday hosted by Jo Swinson, along with many representatives from both sides of the payday loan industry. The new regulator suggested the industry be treated in the same way as tobacco firms have within Britain as one possible alternative.

Mr Wheatley said,

I think there are lots of problems with advertising and is one element that has been commented on, the targeting of young people, students, children in some cases.

The OFT decided to refer the two billion pound payday loan market to the Competition Commission last week after giving the fifty biggest lenders twelve weeks to get their act together. That in turn helped bring about Monday's meeting which was called for by the government consumer minister who feels a radical shake up is needed.

The current financial regulator are particularly concerned that applicants who are not able to repay their loan within the required time span may become vulnerable as they have no choice but to have the loan deferred, which means it is rolled over. They worry that the consumer is then in a catch 22 situation whereby the extra fees added on make it even more difficult to pay back the original amount that they borrowed.

They reported that in some cases, up to fifty per cent of a lender's income are received via customers incurring extra fees by rolling over their loans. They have concerns too regarding the criteria used when weighing up the applicant's approval. They feel it is possible that lenders may not be as responsible as they claim when deciding whether or not to grant an advance.

The Competition Commission will now look into the information they have been handed further and may take up to one and a half years to decide how they wish to proceed.