World News - Payday loan rollover plan challenged

divdiv class=story-body readability=79 span class=story-date#13; span class=date5 November 2013/span#13;span class=time-textLast updated at /spanspan class=time08:15 ET/span#13; #13;/span#13;#13; #13;#13;#13; #13; #13; #13; p class=introduction id=story_continues_1Payday lenders are divided over a plan to limit the number of rollovers of short-term, high-interest loans, MPs have heard./p#13; pThe City watchdog, the Financial Conduct Authority (FCA), has proposed a limit of two extensions of payday loans if borrowers chose not to repay./p#13; pThe Office of Fair Trading (OFT) has suggested that one rollover was a sign that a borrower was in difficulty./p#13; pBut lenders told MPs that rollovers were suitable in some cases. /p#13; pPayday lending is being put under the microscope by MPs amid a defence from some of the industry's biggest players./p#13; pMembers of the Business Select Committee quizzed lenders, consumer groups, regulators and a minister about the industry./p#13; pElsewhere, Labour leader Ed Miliband criticised what he called Britain's Wonga economy, saying that the rise of payday lenders symbolised the squeeze on living standards facing millions of families. /p#13; pHe accused the firms of preying on the vulnerable, creating a quiet crisis for thousands of households left with debts they were unable to pay off. /p#13; span class=cross-head'Timid'/span#13; pThe one-off committee session heard that consumer groups say complaints are up since the introduction of an industry charter to ensure loans are made correctly./p#13; p id=story_continues_2Consumer Minister Jo Swinson said that lenders had failed to get their own house in order./p#13; pGreg Stevens, chief executive of the Consumer Credit Trade Association, a trade body, challenged the idea that complaints were rising and said there had only been 36 complaints so far this year./p#13; pProviders Wonga and Mr Lender said that 2-3% of loans were made to people who then hit financial difficulties./p#13; pHenry Raine, head of regulatory and legal affairs at Wonga, said that figure, as well as affordability checks, compared favourably with credit card companies and banks./p#13; pWe aim to lend to people who can pay us back, he said. We do everything we can to lessen the load of bad debt. /p#13; pHe added that Wonga's average loan was £176 for 17 days, and that customers received a variety of reminders in the final days to avoid having to extend their loans./p#13; pAdam Freeman, of provider Mr Lender, said that it conducted strict affordability checks. It offered a loan to one in 100 applications, but forwarded some others on to credit brokers./p#13; pIndustry trade bodies said that they had not expelled any payday lenders for failing to adhere to their codes of practice. /p#13; span class=cross-headRollovers/span#13; pThe lenders had differing views on the FCA plan to limit extension of loans to two rollovers./p#13; !-- Embedding the video player --#13;!-- This is the embedded player component --#13;#13;#13; #13; #13;#13;#13;#13;!-- wwrights check --#13;!-- Empty country is used on test environment --#13;#13;#13;#13;div class=videoInStoryC readability=1#13; div id=emp-24809741-80894 class=emp#13; #13; #13; noscript#13; div class=warning readability=1#13; img class=holding src=http://news.bbcimg.co.uk/media/images/70913000/jpg/_70913380_70913379.jpg alt=(L to R) Gillian Guy; Martin Lewis; Peter Tutton and Richard Lloyd/pstrongPlease turn on JavaScript./strong Media requires JavaScript to play./p#13; /div#13; /noscript#13; #13; !-- embedding script --#13; #13; /div#13; !-- companion banner -- #13; #13; #13; #13; !-- END - companion banner --!-- caption --p class=captionConsumer groups talk about payday loans: A role for them or Not fit for purpose?/p#13; !-- END - caption --#13; #13; #13;#13;/div#13;!-- end of the embedded player component --#13;#13;!-- Player embedded -- pLender QuickQuid told MPs that it already limited borrowers to two rollovers. However, the Consumer Credit Trade Association described the FCA plan for two rollovers as arbitrary and said affordability was more important./p#13; pMr Freeman agreed that there were cases in which it was better for a customer to rollover a loan and pay the extra interest./p#13; pJust because someone rolls over a loan does not mean that they are in financial difficulty, he said./p#13; pRussell Hamblin-Boone, ‎chief executive of the Consumer Finance Association, said it had a code of practice that ensured lenders were only able to roll over a loan three times. He said the average time to repay was 41 days./p#13; pBut later in the session Richard Lloyd, of the consumer association Which?, said: It is just not credible to say that lenders are acting responsibly to allow people to roll over their loans. /p#13; pMPs also heard that lenders had no system in place to check what other loans consumers had taken out with other lenders. Mr Lloyd said that rules should ensure that these cross-checks were made./p#13; pHe said that the fees and charges linked to rollovers was what put people in financial difficulty, and that a two rollover limit was a good place to start./p#13; pPeter Tutton, from the StepChange debt charity said that many borrowers were in a hole and a payday loan helps them to dig the hole deeper./p#13; pGillian Guy, of Citizens Advice, said that it was not appropriate for some people to be force fed a payday loan, rather than given debt advice./p#13; pMartin Lewis, of Moneysavingexpert.com, said it was important that the FCA prevented the rollover limit being bypassed. The danger was that borrowers would be encouraged to take another loan to pay off the original one. /p#13; span class=cross-headMortgage effect/span#13; pThe hearing comes after an Office of Fair Trading (OFT) report said that there were deep-rooted problems in the way payday loans attracted and treated customers./p#13; #13; pIt presented a dossier to the 50 leading payday lenders, which represented 90% of the UK market, about their failings and told them to improve. It also meant the industry was facing a Competition Commission inquiry./p#13; pAs a result, 19 firms have exited the market. Three have had their credit licences revoked. There are more than 200 payday firms operating in the UK./p#13; pHowever, the Commons Public Accounts Committee has been scathing of the OFT's record in regulating the industry, accusing it of being timid and ineffective in a report published in May 2013./p#13; pProviders of these short-term, high-interest loans have faced criticism from many, including a href=http://www.bbc.co.uk/news/uk-scotland-23464963Church leaders./a The FCA has proposed a risk warning be added to payday lending advertisements. /p#13; pBut loan provider Wonga has told the BBC its business practices are being a href=http://www.bbc.co.uk/news/business-24814037misrepresented/a./p#13; pMeanwhile, mortgage commentator Ray Boulger from the advisers John Charcol told Newsnight that taking out a payday loan could adversely affect any future mortgage offer./p#13; pOur experience is that mortgage lenders will often turn down requests for people who have had a payday loan - the regulator should require payday lenders to display this, he said./p#13; div class=comment-introduction readability=-49#13; p class=introductionHave you used a payday loan provider? 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