New rules governing how payday lenders and debt management companies treat their customers have been brought in by the Financial Conduct Authority (FCA) today.
The regulator said its final rules would govern the £200bn a year consumer credit market and cover about 50,000 firms from 1 April. Payday lenders now have to include mandatory affordability checks for borrowers.
The FCA can also now ban any misleading adverts from the operators.
FCA chief executive Martin Wheatley said the watchdog would take a tough approach.
"Millions of consumers access some form of credit each day, from paying for everyday goods by credit to taking out a payday loan. We want to be sure that the market works well when people need it - whether that's for one day, one month or longer," he said.
"Our new rules will help us to protect consumers and give us strong new powers to tackle any firm found to be overstepping the line."
The regulator said its remit to control consumer credit would be stronger than the Office of Fair Trading regime.
It said: "Our supervision of firms will be hands on and we will closely monitor how providers treat their customers, in particular those operating in higher risk sectors such as credit cards, debt management and payday.
"We will respond quickly to any issues that are identified and there will be swift penalties for any firm or individual found not to be putting consumers' interests first, including possible enforcement action and consumer redress."
The rules give consumers additional protection from "rogue practices" and put the onus on credit providers to ensure that they treat customers fairly at all times, the regulator said.
FCA regulation will apply to any firm or individual offering overdrafts, credit cards and personal loans, selling goods and services on credit, offering goods for hire, or providing debt counselling or debt adjusting services to consumers.
| Biggest changes for payday lenders and debt management firms:
Loan roll-overs limited to two
Restricting (to two) the number of times a firm can seek repayment using a continuous payment authority
A requirement to provide information to customers on how to get free debt advice
Requiring debt management firms to pass on more money to creditors from day one of a debt management plan, and to protect client money.
Consumer credit providers will need to ensure that they give customers the right information to make informed choices, that their services meet consumer needs, and that people in difficulty are treated fairly.
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