Anyone who has seen, read or heard the news recently may have heard the debates surrounding the tightening of regulation of the short term lending industry.
You may also have heard of the new regulator – the Financial Conduct Authority, which has the power to fine lenders and impose sanctions on businesses making profits from the sale of financial products in the UK.
Here is a bit more information about it for anyone who is interested:
The FCA has the power to issue fines and an array of sanctions to lenders in instances of financial misconduct or breaches of rules surrounding lending. These supervision serves as a deterrent to the lender, prone to ‘cut ethical corners’ and allow poor practices to creep into their interaction with consumers of their financial products. The impact of the FCA has been acutely highlighted by their interaction with the Cheque Centre, which quickly decided to exit the market for payday lending, following the intervention of the FCA.
Many lenders like Wonga have responded to the climate of tighter sanctions through being more open about the numbers and types of people who use their service, which they argue proves there is a need for the service they provide, and it also proves that some misconceptions surrounding payday lenders are untrue.
One of the biggest changes that has come into play since the establishment of the FCA is the limitation on the powers lenders to retrieve money from people’s bank accounts. Prior to the arrival of stricter regulation, lenders were able to accept partial payments in cases where a debit was refused and were also able to make several consecutive attempts to debit money owed to them. These rules have been shaken up to the point where no more partial payments may be retrieved by a lender. If a payment ‘bounces’ they may not go back and obtain a partial payment. Additionally, the power of payday lenders to continuously pursue a late payment has been limited to two attempts. If the lender makes two attempts to retrieve money and fails, they may not try again, as was the accepted practice up until very recently.
Rules have been introduced surrounding the advertisement of payday loans. Payday lenders must now issue warnings relating to missed payments and debt – something similar to the warnings that must be placed on cigarette packaging and on alcohol.
Moreover, lenders are required to advise consumers of their products to seek financial advice from government- supported bodies such as the Money Advice Service which offers free, impartial advice to those in debt. This measure is designed to show those approaching a payday lender alternatives so their choice to purchase a payday product is more informed.
All of these things are a good sign that the industry is becoming more open and honest and that consumers will be more aware of the potential pitfalls of taking out a short term loan.
Have you ever had to take out a short term loan?