Payday Loans Parliament House
2 The Payday Loan Sector. 15. The payday loan sector is one which has experienced a rapid expansion in the past 10 years.
In our 2012 Report, we noted that figures provided by Consumer Focus indicated that the payday loans market had increased from 0. 3 million borrowers in 2006, to 1.
2 million in 2009 and to 1. 9 million in 2010. [19 ]According to the OFT the payday loan market was worth between £2. 0 and £2.
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2 billion in 2011-12, up from an estimated £900 million in 2008-09. The 2011-12 figure represented between 7. 4 and 8.
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2 million new loans. [20 ].
16. According to StepChange, a leading debt charity, there has been a corresponding rise in the number of people seeking help with payday loan debts:.
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Between January and June the charity helped 30,762 people with payday loan debts, nearly the same amount as for the whole of 2012, when the charity helped 36,413 people. While the amounts owed have only risen fractionally, the number of people with five or more payday loans continues to increase rapidly. [21 ]. Responsible lending and credit checking. 17. The Consumer Credit Act requires lenders to assess creditworthiness before issuing a loan. As the Office of Fair Trading pointed out, this must be based on "sufficient information, obtained from a borrower where appropriate and from a credit reference agency where necessary".
[22 ]In addition, the OFT's Irresponsible Lending Guidance [23 ] makes clear that lenders are expected to assess affordability, which it describes as "each borrower's ability to repay a specific loan in a sustainable manner and without experiencing financial difficulties". [24 ]. 18. The OFT's Compliance Review noted that 74 per cent of lenders who responded to its questionnaire said that they conducted affordability assessments for all new customers, while 67 per cent said that they did so for every new loan. That figure fell to23 per centin respect of each roll-over of an existing loan. [25 ] In coming to its assessment of compliance, the OFT found that the policies and procedures for checking were often:.
Incomplete and lacked essential information, such as the loan acceptance criteria or how consumer data should be used to reach lending decisions. [26 ]. If also found that companies' record keeping was poor:. Only six of the 50 lenders we visited were able to provide documentary evidence that they assessed consumers' likely disposable income as part of their affordability assessments.
[27 ]. 19.
Of more concern was the fact that the OFT found evidence that loans were approved despite the fact that bank statements clearly showed that borrowers were already making payments to other payday lenders. [28 ]. 20. Responding to these figures, Adam Freeman,Chief Executive Officer at Mr Lender, said that following the OFT Compliance Review, his company discussed "income and expenditure" with "every single customer that we will lend to".
[29 ] Andy Lapointe,UK Public Affairs Managerat QuickQuid, declared that his company conducts "an affordability assessment and creditworthiness check with each and every loan and rollover". [30 ]Henry Raine, Head of Legal and Regulatory Affairs at Wonga, also asserted that they were assiduous in assessing affordability. However, he said that the "differentiating factor" of Wonga's approach was that they had invested in "buying as much data as we could" and worked with Callcredit to devise affordability tests:.
There is a lot of public data you can buy in the marketplace to assess people's affordability. Obviously, our algorithm has got better the more we have lent, because you learn about people. Without going into too much detail, we also look at how people interact with the sliders and how they interact on the screen in terms of whether they are appropriate for the loan". [31 ]. 21. The trade associations point outed that the situation had improved since the publication of the OFT's Report[32 ] and that recent survey data demonstrated that improvements were being made:. We recently surveyed the customers of the businesses I represent using YouGov.
93% of them said that their lender asked them about their income, employment and other financial details before approving a loan. 90% felt they were offered a fair loan based on the employment and financial information they provided. [33 ]. While this is an improvement, the results still fall short of 100% compliance. 22. The FCA confirmed to us that it will incorporate the OFT's affordability guidance in its rules.
The rules will state that:. a lender should, depending on the type, amount and cost of credit, consider a number of factors which include: the financial position of the customer; their credit history; the customer's financial commitments including other debts, rent, utilities and other major outgoings; any future financial commitments; any future change in circumstances; and the vulnerability of the customer. [34 ]. However, the FCA envisage some flexibility in companies' affordability tests and said that it would concentrate its focus on "higher-risk" firms. [35 ]. 23.
We welcome the FCA's proposals to adopt the OFT's affordability guidance. However, we remain concerned that payday loan companies will continue to be allowed to adopt "an affordability test suitable to their business". While the FCA is right to concentrate on "higher-risk" firms we recommend that all payday loan companies should be required to resubmit their affordability tests to the FCA for approval before they can continue to work in the sector. Real-time data. 24. Our witnesses from the payday loan sector all highlighted the lack of data sharing as a barrier to more effective affordability tests.
Wonga told us that they were working with "a number of industry players" to develop such a system and that "we need to be able to get hold of as much data as we can, on a reciprocal basis". [36 ]Andy Lapointe from Quickquid also said that he had participated in a number of meetings with the creditreporting agencies in order to "get this built and to push it". [37 ] Andy Freeman, from Mr Lender, also declared that he was in favour of this approach, "If I knew today that this customer has a loan with QuickQuid and Wonga, there is no way I would lend to them". [38 ] He went on to say that "if I had that information, I would be the first to share it and I would be the first to use it". [39 ].
25. Our witnesses from consumer and debt organisations also saw the need for real-time data for assessing affordability. Richard Lloyd representing Which? argued that:. If the industry wants to demonstrate that it can behave responsibly, it needs to get itself in a position where in real-time, or at least in quick-time, it can do checks on whether people have got loans with other players within the industry. That would be a minimum. [40 ].
26. Peter Tutton from StepChange concluded that the industry was moving "extremely slowly" and what was needed was "something to make them move much, much more quickly".
[41 ] He also argued that the FCA should also have access so that it could "spot wrongdoing as it is happening and intervene, rather than coming back months or years later". [42 ]. 27.
The Minister agreed that there was a need for "more dynamic data and information" and told us that in Autumn 2012 (now over a year ago) her Department had convened a round table on the matter. However, she conceded that "that there has not been the kind of progress and speed that we might have wanted from the industry on this issue". [43 ] She added that:.
If it transpired that the FCA was in need of any further powers in order to mandate that, then obviously, Government would be very sympathetic to any powers that the independent regulator needed that they feel that they do not have currently". [44 ]. 28.
Nadege Genetay from the FCA said that this was a focus of the Authority:. We are aware that progress in this area has been slow in the past. If the market can't deliver on data sharing, and we conclude that we are best placed to ensure that real-time data-sharing takes place, we will not hesitate to take action. [45 ]. In written evidence, the FCA also stated that it would be a requirement of payday lenders to submit data on their activities and that it was in consultation with the sector of the details of that data including, product sales and the number of loans they rollover. [46 ].
29. It is clear that for short-term loans, a real-time database is a key tool for assessing the affordability of loans and whether individuals are applying for multiple loans. It is also possible that this greater transparency will increase competition in the sector and drive down costs for the consumer. Despite the sector's apparent support for real-time data sharing, little progress has been made. We recommend that the FCA make clear to the sector that if real-time data-sharing has not been established by July 2014, the FCA will mandate its use as a condition of trading in the sector.
30. Six-monthly activity reports from payday lenders will help the FCA assess the market and the working practices of companies. However, we believe that more up to date data is necessary for the FCA to discharge its duty of oversight.
We therefore recommend that the FCA has full access to any data-sharing programme established by the sector. Rolling over of loans. 31. According to the OFT, around 28 per cent of loans are rolled-over or refinanced, and one in 20 loans are rolled over or refinanced more than four times. [47 ] Of the 50 lenders inspected by the OFT, 44 allowed roll-overs, and 17 actively promoted rollovers in marketing material or at the point of sale as a 'feature' of the loan.
[48 ] In addition, 15 lenders proactively alerted customers to the rollover option prior to the loan due date while it also found evidence of some lenders "deliberately encouraging borrowers to roll the loan over rather than repay". [49 ]. 32. A key finding of the OFT Review was that:. A number [of payday lenders] will agree to roll-over loans even after the borrower had already missed a repayment—in our view, this should be prima facie evidence that the customer is in financial difficulties and the lending is unsustainable. [50 ]. 33.
The OFT also highlighted the fact that evidence from debt advisers indicated that their clients had on average "rolled over their payday loans at least four times before seeking independent advice". [51 ] However, this may be a low estimate because OFT inspecting officers saw examples of loans which had been rolled over more than 12 times. [52 ]. 34.
In its consultation, the FCA proposes to limit the number of rollovers to two and that lenders will have to "prove that rolling a loan over even once is in their customer's best interest". [53 ]. 35.
Our witnesses from the payday loan sector gave a mixed response to placing a limit on the number of rollovers. QuickQuid told us that it had already introduced a limit of two rollovers for its customers. [54 ]The Consumer Finance Association has also introduced a limit of three roll-overs per customer for all of its members. [55 ] Mr Hamblin-Boone told us that the CFA had not come to a position lowering that limit further but said that there was "an indication that two rollovers may be an option".
[56 ]By contrast, Adam Freeman from Mr Lender was opposed, stating that the imposition of a limit would be "detrimental to the consumer". [57 ]Wonga argued that although rollovers were not widely used by its customers, it did not believe that limiting them was "the big issue" in terms of how the industry needed to be regulated. [58 ] Greg Stevens from the CCTA was not convinced by a limit either. He believed the figure of two was "arbitrary",[59 ] and that affordability not the number of rollovers was the key issue. [60 ].
36. Concerns were raised that if a limit of two rollovers was to be introduced, there was a risk that debts which used to be rolled-over could simply be repackaged as a new loan.
[61 ]Russell Hamblin-Boone from the Consumer Finance Association did not consider this to be a risk because the consultation made clear that any limit would apply to both rollovers and refinancing". [62 ] In a similar vein, Mr Raine explained this would not be possible at Wonga because its policy was not to issue a new loan until a customer had paid off an existing loan. [63 ].
37. Our representatives from consumer organisations were in favour of limiting the number of rollovers but believed that the FCA could go further. Martin Lewis, from Moneysavingexpert. com was in favour of limiting the number of roll-overs to one,[64 ]and Richard Lloyd from Which? while accepting that a limit of two was a sensible place to start believed that one rollover was preferable. [65 ]Peter Tutton from StepChange also advocated a limit of one.
[66 ]Gillian Guy, from Citizens Advice, was in favour of a limit, but did not state a preference between one and two. [67 ] In Citizens Advice's subsequent response to the FCA's consultation it stated that "we believe that a cap of one rollover would be more appropriate". [68 ] It is also important to note that the Money Advice Service—the Government's statutory body for the provision of money and debt advice—has also advocated a limit of one rollover. [69 ].
38. Payday loans should only be considered as a solution to a short-term financial shortfall. A limit of two roll-overs, while a welcome development, is not a short-term fix as it would represent a 3-month loan.
Therefore, we recommend that the FCA sets a limit of one roll-over for each payday loan. Continuous Payment Authorities. 39. Continuous payment authorities (CPAs)are payment mechanisms involving debit or credit cards which:.
Allow business to take regular payments from a customer's bank account, within the terms of the agreed authority, without having to seek express authorisation for each payment. [70 ]. 40. The use of CPAs was highlighted by the OFT as a significant source of complaints.
There were two particularly common grounds for complaint:. The consumer was not aware that they had signed up to a CPA, or how it would work; and. Lenders taking frequent part payments over several days or weeks, often leaving the consumer facing significant hardship. [71 ]. 41. Of the 686 complaints received during a six-month monitoring period, 61 per cent related to aggressive or unsatisfactory debt collection practices. [72 ].
42. At present, payday lenders can repeatedly access customers' bank accounts through a CPA. [73 ] In its consultation, the FCA has proposed limiting payday lenders to two uses of a CPA per loan. On each of those two occasions, the lender would only be able to take full payment and not smaller amounts. The FCA also proposes that lenders will have to provide:. Adequate explanations including how to cancel the CPA, how they will use the CPA and whether further attempts may be made to collect payment.
[74 ]. 43. Our representatives from the payday sector believed that CPAs were the best way of collecting money for both the lender and the customer. Andy Lapointe from QuickQuid argued that the benefit to the customer was that if there was a failed payment under the CPA "their bank is not going to charge them a fee". [75 ]He contrasted this with the fees charged by a bank for a BACS payment or a cheque. Mr Lapointe went on to argue that this was the "primary reason" why the CPA was beneficial to the customer for collections. [76 ].
44. Adam Freeman from Mr Lender believed that so long as it was used properly, the CPA was "perfect for the product", both for the consumer and the lender. [77 ] He argued that limiting the number of CPA attempts would be "detrimental" to the borrower:. They might say that, on 31 October, they are going to earn an income of £1,500. You do not know whether that company is going to pay them at 1 o'clock in the morning or 3 o'clock in the morning; you do not know. If you try to take that money from the customer at, say, 1 o'clock in the morning and it fails, you cannot then, with what the FCA are putting out there initially, try to get that money from the customer, so that customer is now going to become a defaulting customer because you cannot take the money from the customer. [78 ].
He also saw no issue with trying repeatedly to use a CPA to recover a debt:. If I tried 10 times that day to get £250 from that customer as £250, what is the difference to the customer? There is no detrimental effect to them. It is not costing them anything. It is not costing us. [79 ]. 45.
In its survey of payday loan customers, the Consumer Finance Association asked the following question:. "Did the lender explain to you how your bank details would be used to take the money from your account?".
The CFA responded that 85% of respondents said that that was a clear explanation. [80 ]. 46. However, this was disputed by Citizens Advice:. People do not, in the first instance, understand either that they have signed up to a CPA, which is very often the case, or how it differs from a direct debit, or that it does differ. [81 ].
47. Gillian Guy went on to argue that customers did not get notice of when a payment was about to be taken and that this was of particular importance to people coming to the Citizens Advice as often they were "living handtomouth". [82 ]Richard Lloyd from Which? agreed that there should be a requirement for lenders to give notice that they are going to use a CPA. [83 ] In terms of the number of times a lender should be able to use a CPA, Peter Tutton from StepChange said:. We would expect lenders to start thinking, if CPA fails once, "Okay, why has that failed? What should we do as a lender to try to make sure, if this person is in financial difficulty, we are not making it worse?" rather than, "If we have not heard from them, we will just take the money anyway and maybe we will add some more charges".
[84 ]. 48. The Minister told us that BIS research had confirmed that customers were not being given sufficient information about CPAs,[85 ] and she welcomed proposals to limit to two the number of CPA attempts over the course of the loan.
[86 ]. 49. Even if a customer has signed up to a CPA, they have the right to cancel it.
Andy Lapointe from QuickQuid said that his company was fully aware of this right and had a "24/7 call centre" open 365 days a year which customers can call to cancel a CPA. They could also cancel a CPA by e-mail.
[87 ] In addition, Mr Lapointe said that his customers received"a notice ahead of time that we are going to be debiting, so it should not be a surprise and it does give them the option to cancel". [88 ]. 50. Gillian Guy did not agree.
She said that the right to cancel a CPA had not been "made clear enough" to customers. [89 ] Lesley Titcomb from the FCA also believed that further information on a customer's right to cancel was necessary:. We absolutely understand that there is a need to make it clearer to people that they have a right to cancel these, and the point that was picked up earlier about the bank's staff then acting on that. Also, there are various triggers we have put in our rules where the lenders have to refer people for debt advice as well, and also we are very clear that they have to be up-front with people about how the CPA is likely to work and when it is likely to be withdrawn, but we have not put the three-day specific point in yet". [90 ]. 51. We agree with the FCA's proposals to limit to two the use of the Continuous Payment Authority by payday lenders.
We recommend that payday lenders be required to give 3 working days notice before using a CPA and that each notice sets out, at the start, the right of a customer to cancel the CPA. 52. According to the OFT, most websites in this sector made claims which it considered to be "potentially misleading". [91 ] The OFT went on to highlight the fact that 30 of the 50 websites it reviewed:. Emphasised the speed and simplicity of loan applications—sometimes to the extent that, if the claims were true, this would imply irresponsible lending and encourage irresponsible borrowing. [92 ].
53. In addition, the OFT found that 14 sites failed to show either a representative example or APR where required. In a further 12 cases, examples ofthe cost of loans were given but were not prominent enough, and there were other examples where the APR was not prominent enough. 20 sites either omitted or downplayed important information about the costs and risks to the borrower. [93 ]. 54.
Examples of what the OFT believed might be misleading or indicative of irresponsible lending included the following statements:. 'No credit checks'. 'No Credit? No Problem!'.
'Loan guaranteed'. 'No questions asked'. 'Applications processed 24/7'. 'Instant cash'. 'Borrow up to £750 instantly'.
[94 ]. STANDARDS EXPECTED.
55. The OFT set out the standards which it expected payday lenders to meet in term of advertising, which are set out below:. Lenders must not suggest that credit is available regardless of the borrower's circumstances.
Statements such as 'no credit checks' or 'extension guaranteed' are either misleading or evidence of irresponsible lending. Lenders must only use speed of process as a selling point where such claims are true and not misleading. Lenders should be aware that emphasising speed may amount to an 'incentive' triggering the requirement to show a representative APR. Where a representative example or APR is triggered, this must be more prominent than the information triggering it—this means that it must stand out more, so it is likely to be seen by consumers and have an impact. Lenders should be aware that emails or texts to borrowers, encouraging them to take out a loan or to rollover, may amount to an advertisement and so must comply with the Consumer Credit (Advertisements) Regulations. Lenders must not specifically target loans at vulnerable consumers. [95 ].
56. In its written evidence, the FCA said that its proposals would require all payday loan adverts to include "a warning reminding potential customers that many people don't pay back loans on time and that this can lead to serious money problems".
[96 ] It would also need to include a "line directing customers to free, independent debt advice". [97 ] Should the FCA find adverts to be misleading or in breach of its rules, the FAC would have the power to ban them. [98 ]. 57.
Russell Hamblin-Boone, representing the Consumer Finance Association, told us that although the payday loan charter did not specifically address advertising and marketing, these matters were addressed in a broader code of practice used by it members. [99 ] He went on to say that the code of practice:. Requires the lenders to comply with all of the marketing and advertising laws that exist.
We work very closely with the Advertising Standards Authority, and we have just set up some workshops with them to work on how short term lenders should be marketing and what their adverts should look like. [100 ]. 58. Gillian Guy from Citizens Advice believed that there was a wide range of issues which needed to be addressed in terms of advertising, in particular a better analysis of the market payday loan companies are targeting:.
We do hear that they are not targeting the people that we are talking about, and yet they are on daytime television; they use cartoons; they put it at times when people that we see with multiple debts might be at home, because they are unemployed. It is that kind of targeting. [101 ]. There are no health warnings on these adverts.
There is nothing about the dangers that they could present, or, indeed, that they are not the solution to all things and there might be some other way out of a debt situation, rather than more debt. [102 ]. 59. Martin Lewis was more forthright in his concerns about the way in which payday loans were advertised and marketed:. We are in danger of grooming a new generation towards this type of borrowing. If you think we have got problems now, you wait until 10 years' time. [103 ].
60. Citing a poll from his website moneysavingexpert. com, Mr Lewis highlighted the impact of daytime advertising, especially on children's channels:. 14% of parents of under-10s, when they have said, "No, you cannot have your toy," or whatever they have asked for, have had a payday loan company quoted to borrow the money from.
30% of under-10s, in a poll of their parents that we have done on the website, are joking about these slogans, and laughing and repeating slogans of payday lenders. [104 ]. 61.
While he did not advocate a wholesale ban on advertising he believed that there should be a "blanket ban" on advertising children's television channels and children's television programmes. [105 ]He also argued that closer attention needed to be paid to the "style and nature" of adverts:.
There are cartoon puppets that make it seem fun, and deliberately fly in the face of the messages we know we want to get out there. They say, "It is easy;" they deliberately try and say, "The other messages you are hearing are wrong. " It is inappropriate propaganda.
We need, when these adverts come on, all the health warnings that we are saying today to be part of those adverts". [106 ]. 62.
Research by Ofcom appears to support the concerns of consumer groups. On 10 December it published research into payday loan advertisement spots on TV. Against a backdrop of a 64% year-on-year increase since 2008, if found that:. In 2008 there were 12 million 'impacts' (the total number of times an advert is seen by viewers) among adults for payday loans adverts.
By 2012 this figure had risen to 7. 5 billion— an average of 152 payday loan adverts per viewer on TV last year. Children aged 4-15 saw 3 million payday loan TV adverts in 2008.
This had grown to 466 million by 2011. By 2012, 596 million adverts were seen by 4-15 year olds, accounting for 0.
7% of adverts seen by this age group. This meant that the average child aged 4-15 saw 70 payday loan adverts last year. More than half (55%) of all payday loans adverts on TV were broadcast in the daytime schedule between 9:30am and 4:59pm. Sixteen per cent were shown between 5:00pm and 8:59pm; 15% between 11:00pm and 5:59am; 9% between 6:00am and 9:29am and the remaining 6% between 9:00pm and 10:59pm. [107 ]. 63. In written evidence, the FCA told us that it is proposing that:.
Payday loan adverts include a warning reminding potential customers that many people don't pay back loans on time and that this can lead to serious money problems. Adverts will also include a line directing customers to free, independent debt advice. What's more, where adverts are misleading and breach our rules, we have the power to ban them. [108 ].
64. We welcome the FCA's proposals to require all payday adverts to include both a "health warning", and directions to debt advice services. We recommend that these warnings be subject to the same requirements for prominence as APRs and that the "health warning" should be repeated at every stage of the application process.
65. We further recommend that the FCA include thewarning that the use of payday loans could affect an individual's credit rating for other financial products, including mortgage applications, should evidence support that position. 66. Research undertaken by Ofcom has shown that payday loan advertising is prevalent on daytime television and children's channels.
We do not believe that these are appropriate channels for payday loans. We recommend that payday loan adverts are banned from programming aimed at children. REFERRALS AND MARKETING. 67.
In addition to television adverts, payday loans are increasingly marketed through text messages and emails. Peter Tutton from StepChange said that his clients were "being bombarded by texts and phone calls", promoting high cost loans:[109 ]. We know that, very often, those loans make the problem worse. So why is it that unsolicited marketing of what can be a very highrisk product is allowed?[110 ]. 68. Mr Hamblin-Boone told us that the Consumer Finance Association would "not allow people to be spammed",[111 ]and that it was companies which were not in trade associations that had created the problems with regard to lead generation.
[112 ]. 69. Andy Lapointe from QuickQuid said individuals had to "opt in to receive texts from us" while Wonga asserted that it does not text people "as a way of getting business". Adam Freeman also said that Mr Lender would "never randomly text somebody, 'Do you need a loan? Come to Mr Lender'" and that he had "never purchased lists or done anything like that". [113 ] However, he said that Mr Lender used 'lead-generators', but insisted that this was not cold-calling by-proxy:. This is online lead generations, where someone has gone to a broker's website and applied for a loan, and we have purchased that lead.
That customer knows they are a Mr Lender customer. It is not a cold call. We know that they are a customer. We can facilitate them. [114 ].
70. StepChange described its clients as people who were "at their lowest ebb" and "massively financially vulnerable", and was opposed to the unsolicited marketing of loans. He argued that the FCA should consider "a ban on unsolicited marketing of payday lending. ".
[115 ]. 71. Following the evidence session a Member of our Committee reviewed texts he had received in relation to unsolicited offerings for payday loans. The following is his experience:. I found 9 texts directing me to a website offering payday loans: www.
txt4payday. com. On that website I filled in details asking for a £200 loan over a month period and pressed the button to "GET YOUR CASH" expecting to be quoted a £50 charge as advertised on various payday lenders sites as the example loan.
I then found myself directed to the QuickQuid website where I was being offered £400 over 3 months with a total cost of £754 to pay back. I left it at that and didn't fill in any further details on QuickQuid's website or even press any buttons. I immediately received emails and texts and calls as follows:. Tuesday 5th November 13. 16 email saying there was one more step;. Tuesday 5th November 13.
16 email giving pre-contract info;. Tuesday 5th November 13. 40 text urging me to sign the contract;. Tuesday 5th November 13. 55 call from a USA number to sign me up - I declined;.
Tuesday 5th November 14. 13 email again giving me pre-contract information;. Wednesday 6th November 6. 32 email saying Hurry—Application expiring soon;. Wednesday 6th November 7. 59 email again giving pre-contract info; and.
Wednesday 6th November 12. 09 email giving Account Login Information. 72.
A second example was more concerning. In order to test the veracity of these referrers, the same Member made a fictitious application in the name of Boris Peep with the member's constituency office address given as the home address.
The loan offer was received by text at 11. 35am on 7 November and "Boris" was directed to a website.
At 12. 00pm the following day, a text was received stating that the loan had been approved. This was followed by another at 12. 00pm on 11 November and a third at 1.
15pm on 12 November. [116 ].
73. Peter Tutton believed that the FCA needed to consider "a ban on unsolicited marketing of payday lending". [117 ]He told us that StepChange is now advising its clients to send unsolicited texts received so that they can try to find out who was sending them. However, Which? is also running a campaign "Call Time" in which it advises people receiving nuisance calls and texts to forward them to the Information Commissioner. [118 ]Nuisance text messages can be simply reported by forwarding them to a dedicated "shortcode" number (7726).
74. Anecdotal evidence from consumer groups and others has demonstrated that unsolicited marketing or brokering of payday loans through texts and emails is an increasing problem. However, there is not yet a sufficient evidence base to understand who is driving this market, which groups are being targeted and when they are sent.
75. We recommend that the FCA highlights the '7726'short code in all its literature on payday loans and discusses with the Information Commissioners Office how texts on payday loans could be disaggregated to establish the extent of bad practice in the sector. If this evidence base demonstrates inappropriate targeting or marketing we recommend that the FCA moves quickly to ban the brokering of payday loans through email, texts and other personal mobile devices. We also recommend that the FCA devises and issues a guidance note for payday lenders along similar lines to that established by the Claims Management Regulator in its Marketing and Advertising Guidance.
76. We further recommend that the FCA conducts a holistic review of the impact of payday loan advertising, the practices of referrals companies working in the payday loan sector and their use of websites advertising payday loans. That review should inform a stricter code of practice in the advertising and marketing of short-term loans. 77. Earlier in our Report, we welcomed the FCA's proposals to include links to independent debt advice on all payday loan adverts.
Although we did not receive specific evidence on funding for debt advice, it is clear that the demand for that advice is increasing at a significant rate. Peter Tutton of StepChange told us that the payday loan market had doubled in the last four years and that the number of people it was advising on payday loan debts had risen eightfold. [119 ] This increase in consumers seeking advice was also reported by Citizens Advice who estimated that it had seen a "tenfold growth"over the past four years. [120 ]. 78.
Government advice on financial matters is provided by the Money Advice Service (MAS), a statutory body established to improve people's understanding and knowledge of financial matters. It works with and supports organisations in the financial services industry, the third-sector, across government and elsewhere. [121 ]MASis funded by an allocation from a levy on financial services firms regulated by the FCA. When payday loan companies come under the FCA regulation they will be liable for that levy.
79. MAS distributes grants to organisations which deliver free debt advice. According to its Annual Review, Directors' Report and Financial Statements for 2012-13, MAS:. Made over £26. 7m of grant funding available to six lead organisations; Citizens Advice, Capitalise, Community Finance Solutions, Greater Merseyside Money Advice Partnership, Bristol Debt Advice Centre and East Midlands Money Advice, to work with over 240 participant organisations to deliver free debt advice over the course of the year. [122 ]. These grants come out of the financial settlement agreed to by MAS and the FCA.
It is not clear how the introduction of payday loan companies into the levy will affect MAS funding or how any additional funding would be fed though to front-line debt advice. However, it is very likely that the FCA's proposals for the signposting of debt advice will further increase the demand for debt advice. 80. Debt charities and consumer organisations have made clear that number of people seeking debt advice for payday loans is increasing at an alarming rate. When payday loans come under the authority of the FCA, they will be subject to a levy.
This must be additional to the existing levy and not used to off-set the level of payments by other financial organisations. We recommend that the levy paid by payday lenders is ring-fenced by the Money Advice Service solely for the funding of front-line debt advice services. 19 HC (2010-12)1649, para 33. Back.
20 www. oft. gov. uk/shared_oft/Credit/oft1481. pdfpage 9 Back.
21 www. stepchange. org/Mediacentre/Pressreleases/Paydayloanproblemsworsen. aspx Back. 22 www. oft. gov.
uk/shared_oft/Credit/oft1481. pdf, page 10 Back.