Payday lenders will be banned from rolling over loans more than twice under new rules to clamp down on poor practice announced by the City regulator.
The Financial Conduct Authority (FCA), which takes over regulation of the consumer credit market from April 1, unveiled a finalised set of rules that will be imposed as it toughens up on poor practice.
Mandatory checks will be introduced to make sure someone taking out a payday loan can afford it and the number of times a payday firm will be able to attempt to try to claw money back out of a borrower's account using a recurring payment known as a continuous payment authority (CPA) will be restricted to twice.
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A limit of two will be placed on the amount of times a loan can be rolled over and firms will also be required to give customers information on how they can get free debt advice.
Martin Wheatley, the FCA's chief executive, said: "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. Our rules will help us to protect consumers and give us strong new powers to tackle any firm found to be overstepping the line."
The FCA will also have powers to ban any adverts found to be misleading.
It has promised to apply "hands on" supervision of how firms treat their customers, particularly in those sectors considered "higher risk", such as providers of credit cards, debt management and payday loans.
It warned there would be "swift penalties" for any firm or person found not to be putting consumers' interests first.