What is the payday loan Good Practice charter?

Summary: This article aims to give an overview of the Good Practice a charter that payday loan lenders are encouraged to adhere to.

Payday loans are a popular way to borrow small amounts over a short period. However, they have come under heavy criticism due to the extremely high and unclear charges that can be levied on the customer, as well as the ease with which an individual can access such a loan, even with a poor credit rating. In July 2012, the main trade associations covering payday lenders agreed to update their code of practice in order to try to improve the industry standards.

What should a payday lender do under the code?

A summary of the Code of practice:

• The lender must deal with their customers fairly, reasonably and above all, responsibly
• They must not pressurise anyone into taking a loan or rolling over an existing loan
• The lender must advise that payday loan should not be used for long term borrowing
• The lender must give a clear breakdown of costs before application
• The lender must ensure proper credit checks are carried out and that the individual is in a position to be able to repay the loan within the agreed time, explaining what information will be considered (if requested)
• The lender must be clear about how payments will be deducted, including how continuous payment authority works if it is used by the lender, as well as how communication will be made when recovering debt from an individual
• If the borrower is struggling to repay the loan, the lender must deal with the individual in a sympathetic and helpful manner
• If repayments are being made under reasonable repayment plan, the lender should freeze interest and charges if they are notified of difficulties in repaying. This should also be the case if repayments have not been made for a maximum of 60 days
• The lender should also provide information to the individual of the free advice providers available such as the Citizens Advice Bureau (CAB).

While lenders that are members of a trade association should adhere to this policy (and many do), there are still many that do not. Therefore, if a payday loan truly is the best option for an individual (and that decision should not be taken without researching alternative options beforehand), it is important to shop around and ensure the lending company chosen is a member of an association, adheres to the charter and follows it throughout the application process.