Payday Lenders Have New Restrictions Imposed By The FCA
Over 50,000 consumer credit firms including payday lenders, door-step, loan sharks and logbook lenders have all had time called on them by Financial Conduct Authority (FCA). Included in the 50,000 consumer credit firms are the high street bank lenders and credit card providers. Some providers are known to charge exorbitant interest rates to borrowers with poor credit history.
The high-cost short-term finance lenders have had a poor reputation in the finance industry as they are been seen to extort the poor and vulnerable people. They were responsible for charging annual interest rates up to 4,214% to the public without sufficient affordability checks.
A case I heard about recently was of a young couple who needed to pay their gas and electricity provider £100 or they would be cut off. They approached a payday lender to borrow the £100 and agreed to pay the money back at the end of the month. They were both full-time employed on minimum wages and had no extra money at the end of each month. Most months they had more month than money left at the end of the month which made it impossible for the couple to save money
They struggled to maintain their payday loan repayments and subsequently feel into arrears. Over the next six months their initial £100 loan had grown to over £1000 including late charges, added interest and admin fees. The couple now could not afford the loan repayments and defaulted on their payments altogether. Shortly after defaulting on their payments, they started receiving telephone calls late in the evening from their payday lender and threatening letters from their solicitor soon followed. Now to compound their financial worries they had relationship problems all caused by borrowing £100 that they could not afford and had no way of paying back.
Hindsight is great after the event, but the blame started with the couple who should have spoken to their gas and electricity provider and asked them for a payment plan. The real blame lies at the door of the payday lender who should have assessed the couple’s ability to repay the debt. At this stage they would have recognised that they could not afford the loan.
Future Profits Of Payday Lenders Crash And Burn 2015
It is for this reason that finally tough new restrictions have been imposed on payday lenders and other providers by the Financial Conduct Authority (FCA). The FCA proposal sets a cap on payday lenders from January 2015. The new regulation will ensure that anyone borrowing £100 from a payday lender will never pay back more than double the amount they initially borrowed in any circumstance. Any new loans taken out will not incur interest or fees of more than 0.08% per day for the amount borrowed.
From January 2015 anyone borrowing £100 for thirty days from a payday lender and pays the money back on time will not pay more than £24 in interest. All default fees will be capped at £15 which is great news for struggling borrowers
This is great news and in the words of the Martin Wheatley, the FCA’s Chief Executive Officer; “it’s a giant leap forward.”
Payday Lenders like Wonga and The Money Shop have agreed to write off substantial debts owed by clients after discussions with the FCA. In the case of Wonga 330,000 clients saw their debts disappear and The Money Shop is refunding 6,000 payday loan customers.
This intervention by the Financial Conduct Authority (FCA) will see the payday lenders becoming a little bit more respectable. We will see many payday lenders, door-step lenders, logbook lenders and loan sharks disappear from the industry as their streets are no longer covered in gold.
Many borrowers will find it difficult to raise short-term money in the future; due mainly to the affordability requirements that lenders will impose on new finance and refinancing of old debts. I have sympathy with people struggling, but they would be wise to remember that if you cannot afford to pay a debt today and you have no way of paying it off at the end of the month then don’t borrow more money. The heart ache and your relationship problems will just compound the debt problem.
The best advice is to talk to the people you owe money to and come to an agreement with them rather than borrowing money from payday lender even at 0.08% per day. Leave your thoughts and experiences below.