The Financial Conduct Authority (FCA) will assess whether a crack down on payday lenders running ads to encourage existing customers to take out more loans would help “put an end to spiraling debt”.
A ban on direct marketing including texts and emails had been proposed to the public earlier this year. However, the FCA said further investigation was needed to determine the impact a direct marketing ban would have on competition and repeat lending.
More up-to-date data will be used to gauge the effects and should new rules be deemed appropriate would be put out to public consultation next year.
“We must weigh up the balance between the impact on firms and consequential impact on competition and consider the most proportionate way to act to minimise harm to consumers,” the regulator adds.
The decision to hold off banning targeted ads will be a slight reprieve for lenders concerned by the prospect of next year’s price cap denting profit margins on loans in the competitive sector.
Under the new rules, borrowers will never have to pay back more than twice the value of the loan they take out with payday loan firms. Additionally, companies cannot charge more than 8% per day in interest rates and must not charge more than £15 should borrowers default on their loans.
The FCA suggests the new price cap would have a major impact on all but the sector’s biggest players – Wonga, Dollar and QuickQuid.
It says: “In 2013 a small number of large firms account for the majority of the market by revenues, while there is the potential for some smaller lenders to remain, our static firm viability model assumes that they do not given that larger, and currently profitable ones are modeled as becoming unviable.”
While estimating “potential firm exit is inherently difficult”, the regulator says it had no other “feasible improvements” to the measures previously taken.
The price cap on loans follows a public consultation in July and marks a drastic step in comparison to previous attempts to curb the nation’s rising debt levels. Efforts to introduce more competition and transparency across the industry, overseen by the now disbanded Financial Services Authority, failed to provide borrowers with adequate protection, the FCA has previously said.
Martin Wheatley, the FCA’s chief executive, says: “I am confident that the new rules strike the right balance for firms and consumers. If the price cap was any lower, then we risk not having a viable market, any higher and there would not be adequate protection for borrowers.
“For people who struggle to repay, we believe the new rules will put an end to spiraling payday debts. For most of the borrowers who do pay back their loans on time, the cap on fees and charges represents substantial protections.”