While new rules for payday lenders came into effect on 1 July 1, a debt charity has called for stricter rules.

Mike O’Connor, chief executive of StepChange Debt Charity, said: “The payday lending industry has shown it cannot put its own house in order, and these rules represent an important step in addressing some of the sector’s most obvious failings. The Financial Conduct Authority (FCA) can and should go further to fix this market where abuse is causing real damage to people and their families.

“Rolling over loans is very profitable for lenders, but it should be seen as a clear indication that a borrower is in financial difficulty. The rolling over of payday loans has served to trap financially vulnerable consumers in ever deeper cycles of unsustainable debt. The new rules will see a limit of two rollovers, but we believe it should be further reduced to one.

“The payday loan industry has repeatedly positioned itself as the lender of last resort for those in financial hardship and it is right that this type of borrowing should carry warnings. We know that, often, payday loans simply serve to make a bad financial situation far worse – it’s like drinking salt water when you are thirsty.

“Time and again we have seen payday loan firms misuse CPA to drain customers’ accounts, often leaving people without money to cover essential household bills. Restrictions on the use of CPA will offer much needed protections for those already in financial difficulty, however there is scope for improvement. If lenders fail to recover funds through the first attempt, this should be viewed as clear evidence that a borrower is in difficulty, and a second attempt should only be made once it has been established that it poses no further risk to the customer.

“Multiple payday loan borrowing continues to be a major source of problems. In 2013, we helped 13,800 people who had five or more payday loans. In order to fix this, the FCA should mandate a system of real-time data sharing, to ensure that lenders have a fully accurate picture of a borrower’s financial situation, including any existing payday loans.”