The Financial Conduct Authority (FCA) took over the responsibility of the regulation of the consumer credit market in 2014 and since that time there has been a tightening of regulations relating to payday loan lenders. There is now much greater levels of protection for consumers against unfair lending practices, whilst the application process for taking out a short-term loan has become a much simpler one, yet with a more comprehensive and secure aspect to it. Payday loan lenders that fail to comply with FCA industry regulation now face high fines and penalties, ensuring that standards have naturally improved across the board.
There were a few different rules that were immediately brought into the industry by the FCA with the intention of an immediate improvement in the payday loans services that consumers were looking to for help. New rules were put together in relation to roll-overs, payday loan advertising, recurring payments, and affordability criteria for applicants, to name just a few. In instances where payday loan firms breached the new rules, the FCA took supervisory action, laying down the new law from very early on in the process.
These days there are a few simple and effective rules for payday loan lenders to follow. Thorough affordability checks must take place on all borrowers before a loan is issued. There must be a limit on the number of roll-overs (two), and there is also a restriction on the number of times a Continuous Payment Authority (CPA) can be used (also two). As well as that there must always be clear risk warnings on any advert or promotion relating to a payday loan service, as well as readily available free debt advice advertised by the payday loan lender. If a borrower is in financial trouble after taking out a payday loan, they must be able to seek personal debt advice through the lending service they have used.
In terms of the pricing structure associated with short-term loans and credit products of this nature, three main changes were brought into place to add security to consumers against unfair lending practices:
- The maximum daily rate of interest was changed to 0.8%
- For those customers struggling to pay back a loan there was a new default fee limit, capped at £15
- Also, the maximum total cost of a payday loan is capped at 100%, ensuring customers will never pay interest that is higher than the original total sum of the payday loan
With tighter regulations comes greater customer service levels and a healthy level of competition within the sector.
Overall, the changes in the industry put forward by the FCA has led to significant improvements for customers on the whole. With tighter regulations have come a new breed of responsible payday loan direct lenders with a duty to assist those borrowers looking for financial help, rather than place them into even greater financial misery through late payment fees, high interest rates, hidden fees, and a snowball of personal debt that is difficult to get out of.
If you are in the market for a payday loan the FCA has definitely made the world a better place for you. Whether you are looking for a fast loan for the next few days for just £100, or an instalment loan with bad credit, a responsible lender will be able to help you with a short-term loan to ease your financial restrictions without placing you in further jeopardy.