PAYDAY lenders that are offering expensive short-term loans have been warned through the city watchdog about their practices following a soar in the quantity of complaints about them lending to customers who cannot afford to pay back debts.
In a letter sent today through the Financial Conduct Authority (FCA) to bosses of lenders, the regulator encourages each firm to "review its current lending processes" to ensure to follow rules.
If the lenders aren't doing this, they must "go ahead and take appropriate steps to deal with this, which may include considering whether to cease lending" before the issues happen to be fixed, the FCA warned.
The risks of unaffordable loans are specifically big among repeat borrowers whose debt quickly risks spiralling unmanageable, unless appropriate affordability checks are in place, the watchdog said.
In 2023, the FCA introduced rules which banned payday loan lenders from rolling over loans a lot more than twice, and gave limits to how many times they can attempt to collect repayments from customers' accounts.
In the letter, lenders were also ordered to think about the "harshness of the consumer detriment that might have arisen" from loans they have succumbed the past, and consider whether they should compensate costumers, including people who haven't yet complained.
Last month it had been revealed that complaints about consumer credit, including pay day loans, rose by an eye-watering 80 per cent to 29,500 complaints within the first six months of the season, compared to the previous six months.
Meanwhile, millions of customers could also still be due refunds – and experts have slammed lenders for being slow in issuing these.
Four years ago, the FCA ordered payday loan lenders such as Wonga and Quick Quid to compensate borrowers who slipped further into debt as a result of irresponsible lending.
In August this season, Wonga collapsed into administration following a large number of compensation claims.
In today's letter, the FCA now also makes clear that should a lender ever be inside a similar situation to Wonga where compensation claims risk pushing the company into bankruptcy, it must inform the watchdog ahead of time.
The annual percentage rates of payday lenders are usually 1,000 percent to six,000 percent, however this varies depending on how much you borrow and over amount of time of your time.
What's contained in affordability checks?
When applying for a payday loan, lenders should look at the incoming and outgoing costs for a period of a minimum of six months.
All costs and spending is going to be taken into account, including any amounts you might receive in benefits, your weekly or monthly income and bills for example rent.
When this is all added up and calculated, lenders will run it via a credit assessment to make sure it's accurate after which determine whether you are eligible for a loan.
Last year, it was revealed that workers use pay day loans to make ends meet, with NHS workers the biggest users.
But thousands and thousands of people are set to save money from a cap on rip-off rent-to-own fees, because of the Sun's Stop the Credit Rip-Off campaign.
Earlier this season, the FCA annonuced intends to crack recorded on "exceptionally high" rent-to-own products, as well as a raft of changes to overdrafts and stricter rules for doorstep lenders.