New Payday Loan Charges are Now in Force

Posted on January 3rd, 2015 by Toni Burns

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Deadline day has arrived yesterday for all payday lenders and now each and everyone of them has to comply with the new regulations that have been set out by the Financial Conduct Authority (FCA).

Interest rates have now been capped to a limit of 0.8% per day of the sum borrowed, and the maximum that anyone is liable to pay back is double the initial loan amount.

Anyone that takes out a high cost short term credit loan and defaults on their payment may be charged a one-off fee of just £15.

This means that if a typical borrower takes out a £150 loan for one month and repays it on the due date, they will be charged a maximum fee of £36. 

If that same borrower fails to pay back the loan amount when it it is date it is meant to be repaid, then their debt will never be more than £300 inclusive of all fees.

Since the city regulator took charge in April 2014, they have looked very closely into the payday industry and have steadily laid out the new ground rules in preparation for 2nd January 2015. That scrutiny caused many lenders to pull out of the market in anticipation of yesterday’s outcome and has consequently led to about a 50 per cent reduction in investment funding the short term lending industry.

Six months ago, the FCA predict that all the new changes will amount to around 11 per cent of current borrowers no longer having access to these types of loans. Their latest research suggests that it is probably closer to 7 per cent. 

The watchdog believes that to be a good thing as it should prevent the correct bracket of borrowers who cannot really afford them and shouldn’t be taking them out in the first place.

Russell Hamblin-Boone, chief executive of the Consumer Finance Association (the trade body for payday lenders) said:

“There will be fewer people getting loans from fewer lenders and the loans they get will no longer be the single payment loans for less than 30 days,” he said.

“The loans that are available now will be for three months or more and they will be at slightly higher values as well. Very few loans will be rolled over.”

Now that the new rules have come into force and lenders are regulated and must abide by them, there seems a fairly good chance there will be an increase in potential borrowers applying for loans because they will feel more protected by the new capped charges. 

But unfair practices must not stop with just this industry and will not stop as far as the FCA are concerned. The Payday loan market should be allowed to compete fairly with all types of credit.

Richard Lloyd of Which? fully supports the new payday regulations and now turns his focus to the “wider credit market”.

The executive director says, “It is now time to turn the spotlight on unfair practices in the wider credit market. We want to see an end to excessive fees that also make it hard to compare different loans, including those charged for unauthorised overdrafts and credit cards.”

About the author

Toni Burns Toni Burns is a Digital Marketing Specialist at Cash Sorted and writes the majority of our informative blog posts. She keeps on top of the finance industry and reports back on any changes that could affect our users. Toni loves skiing, eating out & listening to music.

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