New rules to clamp down on unscrupulous payday lenders

The payday loan industry was this week "given notice" to comply with tough new rules or face being closed down.

The warning came from Financial Conduct Authority (FCA) chief Martin Wheatley as he announced a new consumer-credit rule book which will come into force from next April.

"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," he warned.

The watchdog will force lenders to ensure borrowers can afford loans. It also plans to slash how often payday firms can grab cash out of people's accounts by limiting the number of times they can use continuous payment authorities to two.

Crucially, lenders will only be allowed to rollover loans twice which will drastically reduce the chances of struggling borrowers seeing what they owe soar into a debt spiral.

There will also be tighter restrictions on what payday lenders are allowed to say in adverts, while the FCA will be able to ban any that are misleading.

The FCA takes over responsibility for consumer credit from the Office of Fair Trading next April, but said it will give firms until October to fully comply with the new rules.

Citizens Advice said that it has seen a tenfold increase in payday loans during the last four years. Its chief executive, Gillian Guy, said: "The new rules from the FCA are essential to stem the tide of predatory payday lenders and protect consumers from unacceptable behaviour from the credit industry."

Richard Lloyd, Which? executive director, said: "We want the regulator to go further and use its powers to clamp down on problems faced by struggling consumers across the credit market, like sky-high penalty charges."