Published on October 14th, 2016 | by admin0
Payday loan regulations and what it means for you
Payday and short term loans have attracted a lot of bad press in the UK in recent years – such as the couple who became homeless due to taking several payday and logbook loans and being unable to repay their mounting debt.
Whether you think the blame should be laid with the people who take these loans or the companies that provide them, there is little doubt that, in the recent past, there have been irresponsible lenders:
- approving loans to people who could not afford to repay them;
- giving them rolling credit (where already high interest rates attract more interest on top); and
- charging unrealistic fees and additional costs.
And while stories such as that of the couple mentioned above are shocking, short term loans provided by a reputable company and which are used and paid back responsibly by a customer, can prove useful to have in your financial toolbox.
How is this?
This is because of a change in regulations introduced by the Financial Conduct Authority (FCA) – the industry regulator – that came in to force in January 2015. These new rules give consumers greater protection, as well as preventing the more unscrupulous payday loan lenders being able to operate legitimately in the sector.
What are the new short term loan rules?
Since January 2015, short term loan providers and payday loan lenders:
- are required to make tougher affordability checks – before approving a loan, a lender must check that you’ll be able to comfortably pay it back;
- have their adverts (including those sent by text and email) come under greater scrutiny – they must include the warning ‘Late repayment can cause you serious money problems. For help, go to www.moneyadviceservice.org.uk’;
- have to put price caps on the loans as well as limit certain fees and charges. For example, there is a daily interest cap on payday loans of 0.8%. And you should never have to pay back more than twice what you have borrowed;
- shouldn’t roll over your payday loan more than twice. If they roll over a loan, they’ll also need to give you an information sheet which tells where you can get free debt advice.
A lender or payday loan broker is also obliged to explain:
- the main features of the loan;
- the total amount you’ll repay;
- what happens if you don’t pay the loan on time;
- that you may be charged extra if you do not pay the loan back on time;
- that the loan is not suitable for long-term borrowing;
- how continuous payment authorities (CPAs) work and how to cancel them. You can read more about CPA’s here.
Are these new regulations working?
Data certainly suggests that the regulations have had a positive effect on the short term loans sector, with 33% of companies leaving the market (suggesting that the less reputable ones exited the industry).
There have also been fewer consumer complaints. Statistics from the Citizens Advice Bureau (CAB) – show a 45% reduction in the numbers of clients seeking advice with payday loan debt issues.
In summary, this means that if you are looking for a payday or short term loan, the change to regulations gives you some reassurance that you won’t be hit with unlawful and unexpected charges, fees and extra debt.