Payday loan customers get better protection

By Helen Gradwell

Four trade associations - which represent around 90% of the total short-term loan market - have drawn up a Customer Charter. It is intended to improve customer service and raise standards further.

Lenders must make a number of commitments under the Charter. For example, they have to make it clear how a short-term or payday loan works - and give a clear illustration of fees and charges. They shouldn't put customers under pressure to extend their loan term, or to take a loan out in the first place.

Lenders must make sure that customers can afford the loan - so they will be required to carry out a proper affordability assessment and credit check. If a customer is making payments under a repayment plan due to financial difficulties, or they haven't paid for 60 days, interest and charges on the loan should be frozen.

If lenders wish to recover payments through a continuous payment authority, they will have to tell customers at least three days in advance. They will have to make it clear to the customer how a continuous payment authority works - and their rights to cancel it - so the customer can decide whether it's right for them.

These changes will be put in place by 26th November, within or alongside lenders' existing codes of practice.

The President of the Consumer Finance Association, Caroline Walton, said: "With more people taking advantage of different sources of finance, the Charter explains clearly how a short-term or payday loan works and how much it costs. We have consulted the Government and consumers to develop the Charter, which will sit within or alongside the trade associations' own Codes of Practice. This is an important step towards making short term lending more transparent and setting the highest standards for our customers".

Tags: payday loans, Consumer Finance Association, loan, loans, payday loan debt

Fees payable when continuing service is provided. Repaying debt over a longer period may increase the total amount to be repaid. Calls are recorded and are usually free from UK landlines. Mobile phone users may be charged and should check with their service provider. Cards are provided by third parties and are subject to eligibility, status and terms and conditions. Applicants must be UK residents aged 18 or over.