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New Payday Lending Code Deemed Unimpressive

by Jim ONeil on July 18, 2011

in Payday Loans News

Taking out payday loans in the UK means subjecting oneself to annual interest rates as high as 4,214 percent. A rational person would not do this unless the situation was dire.

Payday lenders justify the sky-high rate by saying that on-time repayment will avoid the full impact. Despite this thinking, many called for reform and it has recently come.

The Consumer Finance Association, an industry body, just released a new code of practice for the payday lending industry. Payday lenders now pledge not to encourage consumers to borrow more money than necessary.

They will try to ensure that the consumer can repay the amount borrowed. Consequences for late payment or non-payment, including costs, will be clearly explained. Consumers with financial troubles will be directed to free advice services.

The new code does not replace existing legal requirements or regulatory guidance provided by the Office of Fair Trading. Jim Lamidey, CFA chief executive, says it provides customers with “added quality assurance.”

Center for Responsible Credit Chief Executive Damon Gibbons begs to differ. He does not feel that the code has any “real substance” and does not think it addresses issues with payday loans.

Mr. Gibbons believes the industry cannot regulate itself. He is calling on the government and the Office of Fair Trading to step in and handle things. He wants them to review payday lender business models to make sure they align with responsible lending principles. He is also calling for a cap on the cost of credit.

According to research published by the Center last year, payday lending regulation is weak in the UK compared to Canada and the U.S. In the latter countries, many providences and states cap loan size based on borrower income and prohibit lenders from continuously rolling over loans.

The rollover process is what leaves many consumers with huge debt.

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