Which? response to Labour’s announcement that it would impose a levy on payday lenders to fund alternative credit providers

In response to Labour’s announcement that it would impose a levy on payday lenders to fund alternative credit providers, Which? executive director, Richard Lloyd, said:

“Millions of people are increasingly reliant on high cost credit to pay for essentials or to repay other loans, pushing them into a vicious cycle of debt. We urgently need to see more alternatives to payday loans that give people affordable access to credit without the irresponsible practices endemic in the payday sector. We also want to see a cap on excessive default charges and the Financial Conduct Authority to clamp down on irresponsible lending across the board to make sure borrowers are being treated fairly whatever form of credit they use.”


1. Which? has set out five ways the FCA should act to clean up the whole of the credit market and send a clear message to irresponsible lenders:

Ban excessive default fees and charges – the FCA should require that the level of default charges should reflect lenders’ actual costs, and there should be a cap on the total amount of default charges.

Crack down on irresponsible lending – the FCA should enforce strong rules on affordability checks that properly take into account a borrower’s income, expenditure and ability to repay the debt, including any outstanding credit commitments.

Put people in control of their credit – end unsolicited increases in credit limits, unauthorised overdrafts should be opt-in only and there must be a limit to the number of times high-cost loans can be rolled over.

Clear and transparent information – the cost of credit and all fees and charges should be transparent, and for high-cost credit should be displayed clearly as pounds per £100 borrowed over 30 days. Credit products should come with clear health warnings explaining the consequences of missed payments.

Swift and early intervention for people in financial difficulty – the FCA should force lenders to freeze charges for borrowers in difficulty, and prevent them from charging interest on high-cost loans beyond 30 days after borrowers default. Lenders must help borrowers in difficulty and refer them to free independent debt advice.

2.  Which?’s latest consumer tracker, which monitors how consumers are coping with their finances, shows:

  • 4% (around 1 million households) take out payday loans each month;
  • Nearly half (46%) of people are worried about their household level of debt.

Which? findings on credit have revealed:

  • Eight in ten of us (79%) – around 38.5 million adults – use some form of credit
  • Four in ten (38%) of people who take out payday loans use them to pay for essentials like food or fuel.
  • A quarter (24%) of people with payday loans use it to repay other credit.
  • Seven in ten (69%) of payday loan users have regretted taking out credit in the past and half (49%) of payday loan users have taken out credit it turned out they couldn’t repay.
  • Three in ten (28%) of credit users say they don’t like debt but see it as a necessary part of their life.

The latest information and research on consumer credit and spending can be found on the Which? Consumer Insight Tracker http://consumerinsight.which.co.uk/

3. Which? has consumer advice regarding payday loans on its website www.which.co.uk/consumer-rights/action/how-to-complain-about-a-payday-loan-company/