Pay Day Loans to Change Under New Regulation From The FCA
Pay day loan companies have recently come under a great deal of scrutiny from the Financial Conduct Authority (FCA), politicians and even the Archbishop of Canterbury has had his say. It’s a sign of current times when people are borrowing relatively modest sums for a short period, but end up paying back thousands of pounds to the lenders, with some companies charging annual interest rates of almost 6,000%.
The FCA is due to take over the regulation of the industry next April and already has the power to cap the cost of pay day loans. In an attempt to further tighten controls, in an amendment to the banking reform bill going through Parliament, the Chancellor has now put a duty on the FCA to use those powers to impose a cap. This includes tighter controls on charges including arrangement and penalty fees. Other proposals include limiting the number of loan ‘roll- overs’ to just two.
The UK is not the first country to adopt such measures. Countries such as Australia have already introduced a monthly interest rate limit of 4%, with a maximum up front fee of 20%.
Whilst these changes are to be welcomed, it is unlikely that these will be in force before 2015, and many people may already find themselves in the situation whereby they are struggling to make their re- payments.
Irresponsible lending leading to more debt
Many pay day lenders offer loans, without carrying out the appropriate affordability checks, with some unemployed people being offered loans that they have no means of paying back. Some companies have offered loans to under 18s and others have simply been offered the money where they haven’t the means to pay back at the end of the month, thereby risking an ever increasing amount of debt.
It used to be said that banks only lend you money if you can prove you don’t need it. Such prudence is a thing of the past and these days the well off can borrow at very low rates while those least able to afford payments are being charged thousand of per cent for loans.
The lenders are regulated under the Consumer Credit Act 1974 and have a duty to lend responsibly. Payday loans companies should be complying with strict guidelines issued by the Office of Fair Trading about responsible lending. Redress Law specialises in financial mis-selling claims and we find that the majority of loans complaints are upheld. Find more information on financial negligence.
By Maria Kalirai
