Will there be an advertising ban for payday lenders?

The Financial Conduct Authority (FCA) announced that payday loan companies could face tough restrictions on where and how they will be allowed to advertise in the future. This announcement followed the industry summit in Whitehall on 1st July when lenders, regulators, government ministers and UK charities met to consider what controls they could impose upon payday lenders. It is an attempt to clean up the payday loans industry in the UK.

The FCA will take over regulation of the payday loans industry from the Office of Fair Trading in April 2014. The FCA is to start a consultation exercise on tougher regulations in September of this year, 2013. The Treasury minister Sajid Javid commented that the sector will now have to deal with a regulator which has some teeth.

Why are some payday lenders advertising on DAYTIME television?

After the summit the chief executive of the FCA Martin Wheatley commented “If payday loan companies are genuinely targeting a particular income bracket- people with jobs – why do they advertise on daytime television?” He added that there was a problem when advertising of this nature (meaning advertising on daytime television) was targeted at students, young people and children since this is the target audience of daytime television advertising. He also added that any advertising restriction would have to be proportionate and that he believed that a total advertising bad would be an “extreme option”.

There are other options that the FCA will take into consideration, these include:

  • a limit on how many loans any individual can take out
  • a limit on the number of loans that can be “rolled over”
  • better affordability assessments
  • a new central data collection facility to improve credit ratings
  • a time lag between loan approval and loan payment
  • a cap on the total cost of credit.

Before referring the issue to the Competition Commission the Office of Fair Trading wrote to 50 top payday lenders in the UK. The lenders were warned that they had three months to prove that they were indeed responsible and transparent lenders. At time of writing this blog 29 lenders have still not responded.

Stella Creasy, Labour MP for Walthamstow criticised the summit. She says “I fear we will see more talk and no action” She called for a cap on the total cost of credit so that any borrower would know the maximum that they would be charged for a loan.

Efforts to clean up the payday loans sector are welcomed by those of us in the sector who are responsible and transparent payday lenders in the UK

Responsible lenders welcome the effort to clean it up the sector and rid it of “spammers and scammers”. These irresponsible payday lenders give our industry a bad name. We have to ask ourselves, however, how successful the proposed measures on restricting advertising will be. Restricting daytime television is one thing but irresponsible lenders will always find a way around restriction. The internet is the obvious place for them to catch the unwary borrower and the Financial Conduct Authority will have no jurisdiction over the internet.