The nation's top consumer financial watchdog on Thursday issued tough nationwide regulations on payday loans and other short-term loans, aiming to prevent lenders from taking advantage of cash-strapped Americans. The long-awaited rules from the Consumer Financial Protection Bureau would require lenders in most cases to assess whether a consumer can repay the loan. "The CFPB's new rule puts a stop to the payday debt traps that have plagued communities across the country," said Richard Cordray, the bureau's director. "Too often, borrowers who need quick cash end up trapped in loans they can't afford. The rule's common sense ability-to-repay protections prevent lenders from succeeding by setting up borrowers to fail."
The UK's biggest payday lender - Wonga - saw its losses double last year as tougher regulation in the industry continued to bite. The short-term lender saw pre-tax losses grow from 38.1m in 2014 to 80.2m last year. It has overhauled the way it assesses applications for credit, and extended the repayment term for some loans. However, it suggested 2016 would be a "turning point" in its financial performance. The company, along with other payday lenders, faces tougher rules from the regulator, the Financial Conduct Authority (FCA), which has ruled that customers must go through stricter affordability checks.
Google has a message for payday lenders -- your ads are no good here. The Internet search giant announced Wednesday that it was banning advertisements for payday loans in order to protect its users "from deceptive or harmful financial products," delivering another blow to an industry under increasing fire from regulators and consumer advocates. "When reviewing our policies, research has shown that these loans can result in unaffordable payment and high default rates for users so we will be updating our policies globally to reflect that," David Graff, the company's director of global product policy, said in a blog post. The ban will take effect July 13 and apply to ads for loans that require repayment within 60 days. In the U.S. only, Google said it also will ban ads for any loans with an annual percentage rate of 36% or higher.
The number of complaints about payday loan companies soared by 178% in the year to March, the Financial Ombudsman has revealed. That is despite the fact that new controls on lenders were brought in by the regulator several months earlier. There were 3,216 complaints about short-term loans in 2015/16, compared to 1,157 the year before. However Payment Protection Insurance (PPI) remained the most complained-about financial product. There were 188,712 complaints about PPI over the year, a drop of 8% on 2014/15.
Ads for payday lenders will no longer appear in Google search results, thanks to an update to Google's AdWords policy that the company announced Wednesday morning. In a blog post, David Graff, Google's director of global product policy, said the company tries to screen out ads that might be harmful or misleading to consumers. "Ads for financial services are a particular area of vigilance," he wrote, "given how core they are to people's livelihood and well being." It's a win for both consumer finance watchdogs and privacy advocates, who are worried about how Google uses the private information people type into their search box. "The Internet should not be a place that profits from your weaknesses," Alvaro Bedoya, the executive director of the Center on Privacy & Technology at Georgetown Law, said in a statement.