Introducing payday loans regulation! Over the past 23 months the Financial Conduct Authority (FCA) has made it clear that change is under way in the payday loans industry. The foundations of this change is on the basis of two key ideas:
To increase borrowers’ awareness of the costs and risks of borrowing without affording it. Also, ways to get help if they have financial difficulties
as well as
To ensure that firms only lend to borrowers who can afford it.
As a result of this new focus the industry now has a brand new set of targets. These are to ensure only those who can afford to borrow do so. Moreover that no one enters into a loan agreement without understanding what it means.
This new ethos begins with the introduction of many new rules, some of the most important of which are:
Payday loans can no longer be rolled over.
The number of times a payday loan can roll over is now limited to two. This means where borrowers can’t afford to repay payday loans there’s no option to continue to put off repaying the loan on an ongoing basis. There were major criticisms of the industry and how it ran. One was that consumers were avoiding paying back loans and ignoring interest and fees accrued during the time it was unpaid.
This goes further than the voluntary Good Practice Charter introduced in 2012. The charter sets a limit of roll overs to three. It’s in keeping with the idea behind payday loans that they should be a temporary type of finance
Continuous Payment Authorities (CPA) cannot occur more than twice.
A CPA is the way that many payday lenders have chosen to collect payments from borrowers. It allows a lender to collect the repayment in any amount and at any time from the borrower’s bank account. This can cause serious problems if the money taken, leaves no funds left to cover something essential like a mortgage payment.
It’s worth noting that not all payday lenders collect repayments in this way. For those that do, the new payday loans regulation means that there is now a limit of two. After that a lender will have to contact the individual and discover the cause of no repayment.
Costs are now capped with the new payday loans regulation.
There are various costs involved in taking out payday loans. The changes introduced by the FCA mean that there are now limits on how much these costs can build up. The most important limits are as follows:
- Interest and fees must not exceed 0.8% per day of the amount borrowed
- Default fees must cap at £15. From 2 January 2015
- No one who has borrowed payday loans will ever pay back more than twice the amount that they borrowed.
We believe this is a major change for the payday industry. It sets an example to the new powers of the FCA in the wider consumer market. Furthermore it protects consumers from financial difficulties.