Yahoo Finance City watchdog warns payday lenders to act on customer complaints
The City watchdog has warned payday lenders to improve their practices months after payday lending giant Wonga plunged into administration.
In a letter sent to bosses on Monday, the Financial Conduct Authority (FCA) said lenders offering expensive short-term credit must review their current processes to make sure they are compliant.
"If the firm identifies that its processes do not comply, it should take appropriate steps to address this, which may include considering whether to cease lending" until the issue is sorted, the regulator said.
The letter follows a spike in complaints related to unaffordable lending and follows the collapse of controversial lender Wonga in August, after it was flooded with compensation claims over old loans.
Labour MP Stella Creasy said at the time that Wonga's payday lending rivals "are all in my sightline to hunt down" while Jonathan Reynolds, the shadow economic secretary to the Treasury, called Wonga's business model "exploitative and immoral".
Others in the payday lending market include QuickQuid, which has been offering short-term loans to Britons online for more than a decade, and London-based Sunny.
The industry is widely criticised for targeting vulnerable customers with high rates of interest, with Wonga embroiled in a number of scandals including chasing indebted customers with letters from a fake law firm. The Archbishop of Canterbury also publicly slated the lender's charges.
Earlier this year it emerged that NHS staff are among those most likely to rely on payday loans. Parcel delivery business DHL and retailers Asda and Sainsbury's also ranked highly in the list of UK companies where employees are most likely to be relying on payday loans.
The FCA, which limited how much lenders can charge and changed collections practices four years ago, said in its letter on Monday that firms should consider the "severity of the consumer detriment that might have arisen" from previous loans.
It added that lenders must also flag immediately if compensation costs mean they could fall into bankruptcy. It was in extensive talks with Wonga in the weeks leading up to its collapse.
