As published by BIS in May,the codes will include; a good practice customer charter explaining how the loan works and the costs involved; a commitment to inform customers three days before money is withdrawn; increased transparency about loan repayment so that consumers can make informed decisions and are not surprised by hidden payments; more help for customers in financial difficulty by freezing charges and interest; robust credit and affordability assessments to ensure loans are suitable for the customer’s situation; and effective compliance monitoring by the Trade Associations to root out poor practice in the industry. 1. A Good Practice Customer Charter to be published by 25 July 2012 setting out in a clear, concise and user-friendly format what customers of payday and other short-term loans should expect from their lender. This Charter will: · highlight lenders’ key commitments to customers, including clear information about how the loan works, the price per £100 borrowed as well as the APR, and charges for extending the term of the loan (‘rolling over’) and default; · explain how lenders will communicate with customers and how customers can contact them; · explain how they assess if customers can afford a loan; · explain how to complain if there is a problem and signpost customers to sources of free and independent debt advice and relevant helplines; · sit along with each trade association’s individual Codes and be easily accessible via lenders’ websites or at business premises. 2. Increased transparency about loan repayments to help consumers make better informed decisions and making sure that continuous payment authority is not used inappropriately for those in financial difficulty. Lenders have committed to: · only extend (‘rollover’) the term of their loan at the specific request of the customer and after reminding the customer of the risks of extending a short term loan; · provide consumers with a clear explanation of how continuous payment authority works and how payments will be deducted from their bank accounts. This will help consumers decide whether this type of repayment is acceptable to them before they take out the loan; · set out consumers’ rights to cancel a continuous payment authority before they take out a loan, reminding them that if they cancel they will still owe any outstanding debt and the need to provide an alternative method of payment on the due date to avoid going into default; · always pre-notify consumers by email, text, letter or phone at least three days[1] in advance before attempting to recover repayment using continuous payment authority on the due date. This notice will encourage customers to contact the lender if they are in financial difficulties and cannot repay; · Where customers have failed to make repayment on the due date, send further regular reminders to customers when a continuous payment authority is being used, providing a contact point for the customer if they are experiencing repayment problems; · Repay any amounts recovered by the continuous payment authority if the customer is in financial difficulty. 3. More help for customers in financial difficulty: Lenders have committed to: · freeze charges and interest if a reasonable repayment plan can be agreed, or after a maximum of 60 days of non-payment; · engage sympathetically and positively with the customer and split the loan into realistic repayments to be repaid over a longer period, where appropriate; · provide customers with a ‘breathing space’ of 30 to 60 days where they are making a genuine effort to agree a repayment plan. 4. Robust credit assessments: Lenders have committed to: · undertake sound, proper and appropriate affordability assessments and credit vetting as part of each loan application and before the term of a loan is extended (‘rollover’); · check the suitability of the loan given the customer’s situation · remind the customer that the loan is only suitable for borrowing over a short-term and not over a longer-term. 5. Effective compliance monitoring of members by their trade associations to ensure improved self-regulation and root out poor practice in the payday and short-term markets. The trade associations have committed to: · meaningful and enforceable sanctions in their Codes (up to and including expulsion from membership for serious non-compliance) · delivering rigorous internal complaints procedures; · taking a proactive approach to monitoring compliance with their codes and regular meetings with the OFT to discuss areas of concern in the market. · undertake a review of the effectiveness of these changes to the Codes 12 months after they come into effect and in light of the OFT’s current study of the market and publish the findings. Definition: Payday and other short-term loans include an agreement where you can borrow a small amount of money (usually between £50 and £800) and repay the loan over a short period (typically one or two months). [1] Where contact is being made by telephone, this timeframe will be influenced by the customer actually receiving the call. Full details;http://news.bis.gov.uk/Press-Releases/Better-help-for-consumers-in-financial-difficulty-from-payday-loans-67a77.aspx