Payday lenders: Is the 'clock ticking'?
Lenders who loan small amounts of money at high interest rates to borrowers until their next payday or welfare payout face new restrictions by U.K. regulators.
From April 2014, Britain's controversial "payday lenders" will only be given two opportunities to take money from customer accounts and limit the number of loan roll-overs for each customer as well as check more carefully whether borrowers can afford to pay them back.
The payday loan industry has come under attack from government, church and even Premier League footballers this year. Concerns have been raised about whether short-term lending encourages poorer people to get into debt, and whether borrowers are fully aware of the charges and higher interest rates they can incur if the debt is not paid off.
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The industry has been accused of not checking whether its borrowers can afford to repay loans, and of enticing consumers in with misleading advertising campaigns. An investigation by the U.K.'s Competition Commission into the industry is currently underway.
The U.S. also has a large payday loan industry, but has been banned in 11 U.S. states.
Now, the U.K.'s new regulator, the Financial Conduct Authority (FCA), has announced its intention to crack down on payday loans.
Martin Wheatley, head of the FCA, said: "Today I'm putting payday lenders on notice: tougher regulation is coming and I expect them all to make changes so that consumers get a fair outcome. The clock is ticking."
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Wonga, probably the most visible of the payday lenders because of clever marketing and advertising, has gone from strength to strength during the credit crisis. Three-quarters of a million people in the U.K. now have the company's app on their phone. According to its website, the company's representative annual interest rate can be as high as 5,853 percent. Wonga did not respond to a request for comment.
The payday companies will be limited to what they can say in advertising as part of the new rules.
Russell Hamblin-Boone, chief executive of payday loan industry body the Consumer Finance Association (CFA), said: "The CFA and its members have always supported well-designed, well-implemented regulation in order to protect consumers and drive up standards."
-By CNBC's Catherine Boyle. Twitter: @cboylecnbc