A Guide to the Evolution of Payday Loans – Are they Fit to Survive? – Chapter 3

Some lenders are not adhering to the new FCA rules. What are these new rules? What are regulators doing when they find a lender breaking the regulations? Find out here with Quick Loans Express, a UK quick loan provider.

In this article about payday lenders new rules not being adhered to, we shall examine:

Story Highlights:

  • The results of an investigation into payday loan websites that are not following the new rules
  • What the new FCA rules are for payday loan companies
  • How customers will be protected by the new rules
  • How comparing loans helps make the right choice
  • The recent price capping of interest and loan fees
  • Some reasons that payday loan lenders are not adhering to the rules
  • Conclusions

Investigation finds Lenders Ignoring FCA Rules

A new investigation has reported that new regulations for payday loan lenders that came into force in May 2017 are not being adhered to by all lenders. These rules were put in place to protect vulnerable borrowers from the ignorance of not understanding the high fees and costs involved when taking out an instant payday loan.

An investigation from the consumer website, MoneySavingExpert, has revealed some startling revelations about payday lenders. The study examined a total of 50 payday loan sites. During the research, they discovered that some lenders were not abiding by the new rules introduced in May 2017. Some sites were found not to have a link to a price comparison website. Ten more were not displaying the link in a prominent position where people would be able to see it clearly. The CMA (Competition and Markets Authority) responded to the investigation by confirming that all payday loan lenders must by law to follow the new regulations.

What are the New FCA Rules?

The FCA introduced new rules and regulations in May 2017 to ensure that people fully understood terms and conditions before taking out a short term online loan. The FCA imposed the new FCA rules due to a spate of complaints from customers over recent years. The new regulations resulted from an investigation by the CMA brought to light in February 2015. The new rules require payday loan lenders to prominently display a link to a comparison website. This is so that customers can ensure that they are getting the best possible deal. Industry leader Wonga immediately published a link to price comparison website, Choose Wisely.

How will these rules protect payday loan customers?

By being able to compare loans from other lenders quickly and easily, borrowers will not miss out on the best deals. Repayment plans will be easier to calculate by giving borrowers a clear and easy to understand explanation of fees and other costs that they can incur. In addition, the new rules will open up the payday loans market to new companies who are trying to compete with existing lenders by cost.

Comparing Payday Loans

Most comparison websites provide comparison tables. Usually, the information will show the:

  1. Maximum amounts that you can borrow
  2. Length of the loan
  3. Amount of monthly repayments
  4. Amount of total repayments
  5. The representative APR
  6. Who the provider is

By seeing all the information on an easy-to-read table, customers will be able to see which deal will benefit them in the best way. These sites tend to cut the jargon and supply the information in a clear and easily understandable way.

So what have we learned so far?
  • A study revealed that not all payday lenders are adhering to the new rules
  • The new FCA designed the rules to help people get the best deals on payday loans
  • Payday loan lenders must advertise on a minimum of one comparison website
  • A prominent link must be displayed to a comparison website on every payday loan website
  • This will help customers understand the terms and conditions of borrowing
  • Comparing loans helps customers get the best value for money

Payday Loans Price Cap

A separate investigation by the FCA into the payday loans industry resulted in a cap on the amount of money that lenders can charge on payday loans. The FCA introduced these new FCA rules in January 2015. They imposed the cap to protect vulnerable people from spiralling debts and large payback fees on payday loans. This was a result of thousands of complaints about the industry to the Financial Ombudsman Service (FOS).

The cap now means that payday loan borrowers do not pay back more than 0.8% of the amount borrowed per day. It also means that they only pay back up to 100% of the loan in fees. There was also the capping of default fees at £15. The FCA is reviewing its price cap on the payday loans industry as part of a current investigation into high-cost credit. The Consumer Finance Association represent payday loan lenders. They report that the price cap means that 600,000 fewer people have had access to credit. Since 2013, the amount of payday loans approved has dropped by 42%.

Why might lenders not want to adhere to the new rules?

When the FCA introduced the new FCA rules it forced many payday loans lenders to go out of business. Others that decided to continue in business lost millions of pounds in profits. Perhaps this is one of the reasons that some existing lenders are not adhering to these new rules. When the CMA was asked by the company that conducted the recent investigation what they would do to lenders that are not following the law, it seems that there is not much that they can do.

The CMA said that they could issue warnings and detailed directions to lenders on the action that they are required by law to undertake. They can also take companies that are not adhering to the rules to a court of law. They said that they would prefer to use other methods of compliance as opposed to court action. This is becasue the time it would take and the costs, are too much.

Conclusion: FCA New Rules Enforcement

It seems that the disregard of the law by some pay day loan lenders is a complicated issue that the CMA must deal with. Many borrowers had got themselves into serious debt before the industry was price capped in 2015, leading to much stricter lending criteria. Payday loan companies say that 600,000 people have not been able to get finance due to the more stringent regulations. The new FCA rules are necessary to protect vulnerable people from getting into expensive debt by clearly displaying all the facts regarding a payday loan.

Crystal Evans
Crystal is a Web Content Manager with a passion for helping others. A Marketing Specialist by trade, Crystal’s first job was in the financial sector and she has been adding verve to personal finance ever since! When in high school, Crystal enjoyed creating revision notes and study aids for her peers – making concepts Crystal Clear. She continues this practice in the post-university School of Life – channelling her love of sharing information into blogging about personal finance

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