Ban payday loan adverts on children’s TV
20 December 2013
In a Report published today, the Business, Innovation and Skills Committee welcomes the increased focus, from across the political spectrum, on the payday loan sector. The Report states that further action is needed, however, to protect consumers.
Recent research by Ofcom shows that payday loan advertising is prevalent on children’s television. The Committee calls for such adverts to be banned from all children’s programmes.
- Report: Payday Loans
- Report: Payday Loans (PDF 1.02 MB)
- Inquiry page: Payday Loans
- Business, Innovation and Skills Committee
Adrian Bailey MP, Chair of the Business, Innovation and Skills Committee, said:
"The Money Advice Service suggests that 1.2 million people plan to take out payday loans to cover the cost of Christmas. The evidence we heard suggests they should think very carefully before doing so. Inadequate affordability checks, unacceptable targeting and inappropriate use of rollovers all are symptoms of a payday loans sector in urgent need of overhaul.
The rapid expansion of the payday loan sector has been accompanied by a significant increase in the number of people experiencing serious debt problems. The two are not unrelated. It is clear that consumers are increasingly at risk from payday loans.
The number of payday loan adverts seen by 4-15 year olds has increased from 3 million in 2008 to 596 million in 2012. This means that last year the average child was exposed to 70 payday loan adverts. It is worrying that our children are being exposed to such an extent to adverts that can present payday loans as a fun, easy and appropriate way to access finance. Children's programs are simply not an acceptable place for payday loan adverts."
Recommendations
The Committee’s recommendations include:
Affordability tests and real-time data sharing
All payday loan companies should be required to resubmit their affordability tests to the FCA for approval before they can continue in the sector [paragraph 21].
The FCA should make clear that if real-time data sharing has not been established by July 2014 it will mandate its use as a condition of trading in the sector [paragraph 27].
Adrian Bailey MP said:
"Despite the apparent support of the industry, progress in establishing real time data sharing has been excruciatingly slow. This is concerning given that real time sharing of data is essential in preventing people from taking out multiple loans from multiple payday loan providers. If the industry has not established real time data sharing by July 2014, the FCA should mandate it."
Roll-overs and continuous payment authority [CPA]
A limit should be set of one roll-over per payday loan [paragraph 36].
Payday lenders should be required to give 3 working days notice before using a continuous payment authority [CPA] and each notice should set out the right of a customer to cancel the CPA [paragraph 49].
Adrian Bailey MP said:
"If a customer misses a loan repayment it is evidence that they are in financial difficulty and that the lending is unsustainable. It is not, as some payday loan companies seem to think, reason for offering a rollover.
Payday loans should only be considered as a response to occasional financial shortfalls, not longer term financial difficulty. Rolling loans over multiple times makes them long term, and therefore inappropriate. Limiting to one rollover would ensure that they are kept short term.
Not getting notice of money being taken out of your bank account is a serious problem if you are living ‘hand-to-mouth’. People need to have advance warning of when money is taken, and to be made aware of their right to cancel a continuous payment authority."
Advertising
"Health warnings" should be subject to the same requirements for prominence as APRs and the "health warning" should be repeated at every stage of the application process [paragraph 62].
The FCA should discuss with the Information Commissioners Office how texts on payday loans could be disaggregated to identify the extent of bad practice. If this evidence base demonstrates inappropriate targeting or marketing, the FCA should move to ban all brokering of payday loans through email, texts and other personal mobile devices [paragraph 73].
Adrian Bailey MP said:
"Vulnerable people at their lowest ebb should not be bombarded by texts and telephone calls offering high cost loans. But this is what anecdotal evidence suggests is happening. The FCA must work to build an evidence base of who is driving the market and who is being targeted. If inappropriate targeting is happening, all brokering of payday loans through email and text should be banned.
The FCA should highlight that nuisance text messages can be reported by forwarding them to the dedicated ‘7726’ "shortcode" number."
Debt advice
When payday loans come under the authority of the FCA, they will be subject to a levy. This should be ring fenced by the Money Advice Service solely for the funding of front-line debt advice services [paragraph 78].
Adrian Bailey MP said:
"Demand for independent debt advice is increasing at an alarming rate. The levy paid by payday loan companies must be used to fund this advice, not to reduce the payments made by other financial organisations to the FCA."