Credit firms face fresh crackdown

The financial watchdog has warned payday lenders they must compensate customers who were sold unaffordable loans.

The Financial Conduct Authority (FCA) has written to the chief executives of high-cost, short-term credit providers following a surge in complaints.

According to FCA rules, payday lenders have a responsibility to assess whether or not a customer will be able to repay their loan without having to borrow elsewhere or default on other debts.

They should also check whether repaying the loan will have a “significant adverse” effect on the customer’s finances.

The FCA’s new warnings come following the collapse of Wonga, which went into administration after facing a clampdown over its debt collection practices.

The fresh crackdown is likely to place further pressure on the remaining players in the payday lending market, led by QuickQuid, Sunny and Peachy.

New rules will force firms to establish clearer rules on lending.

The FCA has warned payday lenders to check their assessments are sufficient, and proactively offer compensation to those who were offered loans without proper checks.

The regulator has also reminded payday lenders of their responsibilities around affordable lending.

It particularly highlights the risks of “chain” loans, where borrowers become dependent on repeated payday loans to afford their repayments.