Always in the focus of bad press for untamed nature, payday loans have annoyed countless borrowers. Something was at its extreme, which is why the regulatory authority – Financial Conduct Authority – had to interfere to protect the rights of the customers. In the disguise of the ‘rescuer’, payday loan actually became the vicious circle of debt.
FCA Regulation On Payday Loan Lender
The seriousness was at its extreme when FCA took over the regulation of the consumer credit market from the Office of Fair Trading (OFT) in 2014. Now the fund seekers have something to expect in the name of relief and they can borrow with less or no fear.
The immediate need to reduce the level of destruction by the super expensive loan deals was sure to catch the attention. The result is the list of rules that are now applicable on the payday loan industry. Not to say, this is a good thing as now everything has a reason to happen and not everything is on the discretion of the lenders.
A set of rules is there that every payday loan lender needs to follow with no compromise. For sure, these rules are destined to give good results and relief to the borrowers. Also, it brings an atmosphere of discipline in the industry that was required since long.
Industry experiences these changes
With an aim to improve the standards, FCA introduces a set of rules on affordability, advertising, rollovers and recurring payments. The rules touch every aspect where the firms breached the requirements and followed unethical practices. The intention of FCA is clear, the need of the time is to welcome a big, promising change.
- According to the rules, the payday lenders need to follow the following –
- Conduct affordability checks of the applicants to make sure, if they can afford the loan or not.
- The limit of loan rollovers is two.
- The number of times in which a Continuous Payments Authority can be used is restricted to two times.
- It is necessary to display the clear risk warnings on all promotions and adverts along with the additional information about debt advice.
The above are in complete implementation and the loan companies are supposed to follow them without any failure.
Not only this, to protect the borrowers from unethical lending practices, FCA implemented three major changes. These changes are in the price structure of the short-term loans.
- Lower the maximum rate of interest to 0.8% per day.
- Default fee has been capped at £15. This aims to protect customers from their struggle to pay back the loan. It prevents them from a further vicious circle of debt.
- The maximum total cost of the payday loan is capped at 100%. Due to this rule, the borrowers do not need to pay the interest that exceeds the total loan amount.
Another big aim of these regulations is not only to bring strict loan practices but also to inspire healthy competition amongst the payday lenders. This becomes responsible to improve consumer trust.
Customer is in the CORE
The Treating Customers Fairly is a guidance for the lenders that includes six principal outcomes. This actually expects from the lenders to show that the customers are in the focus of their business model.
- The points of TCF are –
- Customers have the confidence that they are dealing the lending firm in which fair practices are in the centre of the corporate culture.
- Product and services sold and marketed in the retail market are according to the needs of the customers.
- Consumers have been given the clear information before, during and after the sale of loan product.
- Consumers have the product to exploit that performs in the expected way. The associated services are of acceptable standard.
- Consumers do not face post-sale barriers such as product change, switch of provider.
These changes are now working well to bring the promising changes in the practices of the Guaranteed Payday Loans. Now only good things are there to expect. A healthy financial atmosphere gives birth to prosperous people and in turn a strong nation. Every small bit of improvement plays a significant role and brings the good days where lenders and borrowers can trust each other.