Payday lenders are to promise to clean up their act following a barrage of criticism from consumer groups and debt charities over the industry's high interest charges and lending practices.
Some of the UK's biggest payday lenders will unveil a new industry code of practice this week which is likely to set a limit on the number of consecutive loans that a borrower is allowed to take out and ensure that those who clearly can't afford repayments are not lent to in the first place.
The firms are also set to pledge that they will improve their data-sharing with the credit reference agencies, therefore helping lenders better gauge which borrowers could be slipping into debt difficulty. But the code is unlikely to head off calls for stricter regulation of the sector with some firms charging more than 4000 per cent APR for short-term loans.
Una Farrell, head of communications at the Consumer Credit Counselling Service (CCCS), said that the code would leave a lot of problems unresolved.
"It's all very good saying that they will limit the number of times they roll over one loan into another, so to squeeze as much interest out of the borrower as possible, but really people who need payday loans should in the first instance be directed to free debt advice, not sold to," she said.
The CCCS says that it has seen a huge rise in the number of unemployed people who have been allowed to take out a payday loan despite there being little prospect of them making the repayments.
"One in 20 unemployed people we have counselled in the past year have had a payday loan, and the average debt owed on these short-term loans was £918," Ms Farrell added.Reuse content