The controversial payday lending sector has agreed new rules with the government to help borrowers who are struggling to repay their debt.
However, charities have said the changes do not go far enough and many firms in the sector will simply ignore the new guidelines.
Payday lenders have been under the spotlight for the extortionate interest rates charged and the practice of ‘rolling over’ loans which are not repaid on time, adding extra fees and causing the balance to rise rapidly. They have also been slammed for their use of the continuous payment authority, frequently collecting money from bank accounts with no notice, leaving customers unable to pay essential bills, such as rent.
But following talks with the government, the industry has now agreed that for customers in severe financial difficulty, interest and charges will be frozen. They have also promised to give at least 3 days notice before collecting any money.
Ministers have also told payday lenders they want to see proper checks being conducted before money is handed out, to ensure the customer has the means to repay the loan.
But despite welcoming the effort, charities working in the debt sector have claimed these new measures do not address the core issues and many firms will simply carry on as before.
The chief executive from the Money Advice Trust, Joanna Elson, said that payday lenders already ‘repeatedly fail’ to adhere to the code of conduct from the Office of Fair Trading which they are supposed to follow and believes the new rules will be equally ineffective.
The head of financial services from Consumer Focus shares the concern, describing payday lenders as successfully glossing over ‘woefully unacceptable’ methods of debt collection. She added that the group still has ‘major concerns about some lenders in this sector.’