Financial regulator did not ban direct marketing of payday loan brands to existing clients as part of a new package to restrict the industry, but refused to rule out the measure before broader scrutiny .
The Financial Conduct Authority (FCA) will assess whether a crackdown on payday lenders running ads to encourage existing customers to take more loans would help “end the spiral of debt.”
A ban on direct marketing, including texts and emails, was offered to the public earlier this year. However, the FCA said further investigation was needed to determine the impact a direct marketing ban would have on competition and repeat lending.
More up-to-date data will be used to assess the effects and if new rules were deemed appropriate, they would be submitted for public consultation next year.
“We must weigh the balance between the impact on businesses and the consequent impact on competition and consider the most proportionate way to act to minimize the damage caused to consumers”, adds the regulator.
The move to suspend the targeted advertising ban will provide a slight reprieve for lenders concerned about the prospect of a price cap next year reducing profit margins on loans in the competitive industry.
Under the new rules, borrowers will never have to repay more than twice the value of the loan they take out from payday loan companies. Additionally, companies cannot charge more than 8% per day in interest rate and should not charge more than £ 15 if borrowers default on their loans.
The FCA suggests that the new price cap would have a major impact on all but the biggest players in the industry – Wonga, Dollar and QuickQuid.
He says: “In 2013 a small number of large companies represent the majority of the market in terms of revenue, while it is possible that some smaller lenders will stay, our static model of business viability assumes that they do. not since the biggest, and currently the most profitable, are modeled as becoming unsustainable.
While considering that “the potential exit of a company is inherently difficult”, the regulator asserts that there were no other “achievable improvements” compared to the measures taken previously.
The price cap on loans follows a public consultation in July and marks a drastic step from previous attempts to curb the country’s rising debt levels. Efforts to bring more competition and transparency to the industry, overseen by the now disbanded Financial Services Authority, have failed to provide borrowers with adequate protection, the FCA previously said.
Martin Wheatley, Chief Executive Officer of FCA, said: “I am convinced that the new rules strike the right balance for businesses and consumers. If the ceiling price were lower then we risk not having a functioning market, higher and there would not be adequate protection for borrowers.
“For people who are struggling to repay, we believe the new rules will end the payday debt spiral. For most borrowers who repay their loans on time, caps on fees and charges represent substantial protections. “
