Five questions on: Consumer credit rules


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The Independent Online

What are the rules, that you borrow a little and pay back a lot?

 No, these are new official regulations which are coming into force in April. The rules will force payday lenders and debt management companies to treat their customers more fairly.

Ah. So what are the new rules?

They include mandatory affordability checks for payday borrowers and give the Financial Conduct Authority the power to ban any misleading adverts from payday lenders.

Is that it?

There's plenty more. For starters the number of times payday lenders can rollover loans - adding to struggling people's debt - will be restricted to two. Meanwhile the number of times a firm can use a continuous payment authority - which allows them to take money from people's accounts - will also be restricted to two. High-cost credit companies will also have to to provide information to customers on how to get free debt advice. Meanwhile debt management firms will be required to pass on more money to creditors from day one of a debt management plan, and to protect client money.

That all sounds like good news. Is everyone pleased?

Not Carl Packman, the author of Loan Sharks: The Rise and Rise of Payday Lending. He said: "The new rules do not go far enough. The limit on two rollovers for example will do next to nothing to improve outcomes for customers. Rollovers in themselves, which provide payday lenders around 50 per cent of their revenue, are an indication that a borrower is struggling and should be limited to just one."

Is he right?

Yes. Payday lenders are too reliant on making profits from rolling over loans, as they earn extra interest and fees out of the people who are most struggling. Easy rollovers should be scrapped altogether as they can be a first step into a cycle of debt.

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