Short-term lending code by the Finance and Leasing Association

Short-term lenders must restrict the number of times they allow a loan to be rolled over to three, according to guidelines issued today.Lenders offering short-term credit products to consumers must also carry out a credit check each time a loan is rolled over, and ensure customers are aware of the total cost of the product before they apply.

It must also be made clear that short-term loans are unsuitable for long-term borrowing.

These guidelines were issued today by the Finance and Leasing Association (FLA) following a period of intense scrutiny of the short-term lending industry, particularly payday lenders, amid concerns that consumers are being driven into unsustainable debt spirals after missing repayments on short-term loans.

In response, the FLA has re-launched its consumer lending code in a bid to provide greater protection for borrowers in financial difficulty.

The Code is binding on all fifty FLA members in the consumer credit markets, and is subject to independent oversight. It includes a customer complaint service, and takes account of recent changes to statutory regulation, including the new Consumer Credit Directive and the latest Office of Fair Trading Guidance.

Fiona Hoyle, FLA head of consumer finance, said: “The new measures for store card sales and short-term loans reinforce the commitment of all FLA members to responsible lending.”

Measures announced for store cards include a ban on commission payments for shop staff selling store cards, and a delay in discounts or other benefits for the first seven days after a store card is acquired.

The updated code also contains additional measures to help customers in financial difficulty and in particular those with mental health problems.

Source: FLA Lending Code 2012ipdf