FCA to investigate payday loans debt collection process

The Financial Conduct Authority (FCA) has announced it will investigate the debt collection processes employed by payday loans companies.

It stated this would be one of the very first actions it will undertake once it takes charge of the credit industry on April 1st. The organisation claimed this is just one part of its agenda to look into what it called the "poor practice" in the short-term loans industry.

According to the FCA, six out of ten complaints received by the Office of Fair Trading surrounding this sector have been about the manner in which debt collectors have been employed. In addition, figures showed over a third of payday loans are either paid off late or not at all.

The authority stated for those people struggling to meet their obligations, it will encourage a culture of consultation to discuss how they can get their finances back on track. This will hopefully replace the current practice of piling on more pressure on already-distressed consumers by calling out the debt collectors.

In addition, the FCA claimed it would look further into the culture of short-term lenders, to make sure they are completely customer-oriented, rather than simply focused on profits. Furthermore, it will analyse how sympathetic firms are to the individual circumstances of borrowers.

Beyond this review, the regulator has outlined plans to introduce a number of measures, designed to ensure customers are well looked after. These include visiting the biggest credit companies to analyse their business models. Promotional material will also be assessed, to make sure anything judged to be misleading or designed to downplay the risks involved in taking short-term loans is quickly banned.

Meanwhile, the new authority stated it would continue to liaise with the credit industry to encourage real-time data sharing. Additionally, it announced it will continue to regularly consult both trade and consumer organisations to ensure regulations designed to protect customers remain balanced.

This follows on from its statement in February, which outlined new rules concerning how short-term lenders would assess a client's ability to pay back their loans. Under the proposals, thorough affordability checks would become mandatory, while a limit will also be put in place to govern the amount of times a debt can be rolled-over. In addition, the use of continuous payment authorities will also be restricted. This agreement gives creditors the right to dip into a borrower's bank account to seek repayment. 

Around 50,000 credit firms will come under the remit of the new regulator when it comes into force next month. These organisations will be given a limited length of time to conduct business as normal, before having to seek authorisation before engaging in lending activities in the long-term. 

The FCA stated short term loans companies would be among the first that will have to apply to be accredited and expected a quarter of the firms currently in existence will leave the market as a result. 

By Amy White