Guidelines For The Pay Day Loan Companies
Payday loan companies have committed to improve the way they sell credit to debtors under voluntary guidelines which were agreed with the government
.The Guidelines:
The companies have to add the new commitments to their existing codes of practice by 25th July 2012. These include promise of increasing transparency about loan repayment. They aim to help customers in financial distress by freezing the charges and interest.
Where borrowers have failed to make repayments on the due date, companies have agreed to send reminders to customers to repay their loans.
Reason For Introduction Of Guidelines:
Earlier this week, payday loan company Wonga was told by the Office of Fair Trading (OFT) that it had to improve its debt collection practices. The Company sent letters to customers with default payments in which it accused them of committing fraud.
The voluntary Guidelines were a result of discussions between the government and four trade associations which represent about 90% of the payday industry. Companies not covered by the associations will not be bound by the new guidelines.
Reaction To The Guidelines:
Business minister Norman Lamb expressed that the agreement was a step in the right direction. Sarah Brooks expressed the support for the new codes of practice. Gillian Guy chief executive of citizens advice also supported the guidelines but said that To make this reality bite we would also like to see the codes monitored independently, with input from consumer groups.
Penalty For Non-Complaince:
The trade associations will ensure that these codes were practiced. Penalty for not following the codes is expulsion from the trade association.
The payday loan companies are examined by the OFT. When the OFT report is published, it is expected to deliver further measures to solve problems with payday lending. The government is considering empowering OFT with the power to suspend credit licences.
Statistics Of Problems
National debt-line received 4,725 calls for help with payday loans in first three months of 2012 which is 58% more than the previous quarter and 133% more than same quarter in 2011.
CONCLUSION:
If all the companies irrespective of whether they are a member of the trade union follow the codes, it might change the situation.
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