Payday Loan Brokers Face Fresh FCA Clampdown

Brokers who reap big profits by acting as lead generators for payday lenders will be banned from removing money from customer accounts under a fresh crackdown from the City regulator.

Sky News has learnt that the Financial Conduct Authority (FCA) is to announce within days a new set of rules covering short-term lending intermediaries.

Companies including Cash Lady and Purple Payday, which do not lend money directly but act as brokers, will be targeted by the FCA rulebook.

Sources said a ban on their ability to remove money from consumers' accounts and measures to force them to be more transparent would be introduced from January.

The FCA's decision to introduce the rules with just a few weeks' notice and without a formal consultation period underlined its determination to overhaul the practices of an industry which has faced intense public criticism in recent months.

One insider said the City watchdog could make a statement about its plans as early as next week.

The Competition and Markets Authority (CMA) has already flagged concerns about the lack of transparency involving payday loan brokers.

"The CMA has found that many borrowers believe that lead generators are themselves actually lenders rather than simply intermediaries," it said last month.

"Even where this is understood...customers are generally unaware that, rather than matching borrowers with the most suitable or cheapest loan on offer, lead generators instead sell borrowers' details to lenders based on the fees lenders offer to them."

Earlier this month, the FCA confirmed details of a cap on the amount that payday lenders such as Wonga can charge, which will decimate the profits made by the sector.

The City watchdog believes that this move will force most existing operators out of business, which has raised some concerns that desperate consumers will be forced to seek even less palatable alternatives to borrow money.

An accreditation scheme for payday loan comparison sites, for which the CMA has pushed, may also form part of the new FCA rules.

The payday lending sector has accused regulators and politicians of demonising it, but executives admit that a series of scandals has made rehabilitiating its image all but impossible.

Wonga has been fined for sending fake legal letters to customers in arrears, seen advertisements banned by a watchdog and written off £220m in loans after talks with the FCA about its business practices.

The FCA declined to comment on Thursday.