A Guide to the Evolution of Payday Loans – Are they Fit to Survive? – Chapter 7

Since the FCA regulations of the payday loan industry, it has seen a complete change. It is now a fair and transparent lending marketplace that its customers no longer need to fear. Read on with Quick Loans Express to learn about the changes.

Story Highlights:

The need for FCA regulations
What the FCA did about the problem
The clampdown on brokers
Helping vulnerable customers
The high price of loans
Becoming more transparent
Comparing loans
Improved confidence for applicants

Why Do Payday Loans Need Regulations?

On the day that the FCA clamped down on the payday loan industry, there were loud cheers in the City of London. The short-term loans facilitated by companies such as Wonga had APR of 6000% in some cases. This caused a public outcry against these unscrupulous lenders. Many borrowers became trapped in a spiral of debt as they could not afford to repay these payday loans. MPs and campaigners were very vocal in their protests to draw attention to the state of the industry and to get the government to act and regulate instant payday loan direct lenders. Today the industry is very different from the one that attracted so much bad press and criticism.

What Did The FCA Do To The Short-Term Loan Industry?

The first thing that the FCA did was to make all lenders and brokers have their authorisation to trade. They also made sure they would be able to operate under their new regulation. For companies to continue trading until they completed the authorisation, the FCA allowed those payday loan companies to trade that applied for interim permission.

For mostpayday loan online UK lenders this meant a 12 month wait until they became fully authorised. Only the ones who were found to be fully compliant with the FCA regulation managed to get their authorisation. In this manner, the FCA managed to remove more than half of the companies that previously offered payday loans. This left only the better ones in place.

The Regulations Pushed Payday Loan Brokers Out Of The Marketplace

In the years before the FCA regulation in 2015, it was quite difficult for most customers who were seeking a payday loan to distinguish which companies were direct lenders from those who were just brokers. The authorisation needed by companies de-powered brokers who were guilty of selling data to other companies who then would hassle borrowers with a barrage of text messages, emails and phone calls. In some cases, people were charged “admin fees” of up to £70 just for searching for a loan on a broker’s website. After a deluge of complaints to the Financial Ombudsman Service, the public got warnings about this kind of broker websites.

What Was Done To Help Vulnerable Customers?

Before a loan could be approved the FCA regulations stated that payday loan companies had to complete credit and affordability checks on their applicants. This would make sure that they could afford the product. This meant that people who got themselves into serious debt would no longer be vulnerable.

Prior to this, some payday loan companies encouraged customers to take short term credit that they couldn’t afford. This trapped them into paying exorbitant rollover fees. Many companies got fined and were ordered to pay back money that took through irresponsible lending. Today there are strict checks carried out on quick cash loan applicants to protect people from themselves.

So what have we learned so far?

  • Before FCA regulation some payday loan companies facilitated loans that reached 6000% APR
  • MPs and campaigners forced the government to regulate the industry in 2015
  • Lenders who wished to conduct business had to get authorisation from the FCA
  • Half of those who operated before the clampdown did not apply and stopped trading
  • Brokers used to sell data and charge customers fees for searching for loans
  • Credit and affordability checks had to be carried out on applicants
  • Many firms were ordered to pay back the money that they had unlawfully taken

The FCA Regulations

To stop lenders from charging whatever they liked the FCA introduced a price cap. This was set at a maximum of 0.8% a day which meant that for every £100 borrowed a customer would pay back £24 in a month. This was done to ensure that nobody could ever pay back more than double than the initial loan amount. At this point, many payday lenders complained. They stated that they could not operate with a reasonable profit with such small margin. As a result, many withdrew from the industry. To replace the rollover fees that continued to increase the price of the loan when customers defaulted, the FCA set a one-off fee at £15 for those who were late with their repayments.

More Transparency For Lenders

Many payday loan applicants were not aware of the high cost of fees and APR % before FCA regulation. In order to increase transparency, all lenders now have to make their fees and percentages clear on their websites and on any advertising. To increase competition and to help people find the best quick loan online for them by comparing the market a link to a comparison website must appear on all payday loan websites.

Are Applicants More Confident About Getting a Payday Loan?

By knowing that the FCA has put these regulations for payday loan companies in place to protect their interests, borrowers can find the best loan product for them with renewed confidence. Gone are the days when a loan applicant did not see hidden fees and high %APR that would amount to them paying back several times the value of their loan if they were to default. The FCA recently reviewed the changes that they had made to the industry and reported that they were happy with the way that business was going. The FCA regulations of the payday loan industry will be reviewed again in 2020.

What can we conclude about consumers no longer fearing payday loan lenders?

There was a time when companies hid the fees and charges. Borrowers were also charged many times more than they had originally borrowed. Thanks to the changes that regulation of the industry has brought about customers can search for fast loans UK and see complete transparency and understand at a glance what it will cost them to borrow before they apply. By dealing with an FCA authorised lender who is obliged to perform affordability checks, there is less chance of a person getting a loan that they cannot afford to repay that will get them into debt.

Payday loans are a godsend for some people who have cash flow problems as they can borrow to cover an unexpected bill and pay back easily from their next paycheck. It is unfortunate that some borrowers have to deal with unregulated lenders as they no longer qualify for payday loans but the payday loan marketplace is safer and fairer thanks to FCA regulations.

Taylor Rose
Taylor has been an avid writer since her early school days. At 5, she was creating candy floss planets where heroic candy canes stood up to the evil Russel Sprout. Later, she was documenting historic events, and her writing was always appreciated by all who read it. After working as a program developer for many years, she traded her successful career to make a living out of her writing skills. Nowadays, Taylor helps the Quick Loans Express blog bring current and useful information to people looking for helpful financial advice online – hopefully with a fun twist!

The article "Have the FCA Regulations Changed the Market?" was last modified on

* Warning: Late repayments can cause you serious money problems. For help, go to moneyhelper.org.uk.