It may be April Fools Day but for the controversial pay day lending sector, the joke is on them.
Today sees the Financial Conduct Authority (FCA) taking over the regulation of 50,000 consumer credit firms and their new rules could mean half of all payday loan firms choosing to shut their doors rather than play nice, according to the Consumer Finance Association, which represents 60% of the £2bn industry.
The FCA has already outlined some of the new restrictions which are set to come into play in July of this year. These new rules will limit the amount of times a customer can ‘roll over’ their loan and more importantly, how many times these firms may attempt to dip into a customer’s bank account to collect the debt, clearing it out.
They also promised to investigate how these lenders are treated, should they be unable to honour the debt in full, as and when it falls due. It appears spot checks will also be introduced, targeting the 5 biggest players in the payday loan market to ensure they are playing by the rules. It also intends placing a cap on costs so if you do get into trouble, the debt will eventually become static, unlike our client, who took out £1,000 in payday loans in 2012.
Due to the size of the repayments, she was unable to clear the debts in full at the end of the month. She ended up paying nearly £4,000 in interest and charges over a 2 year period before contacting Don’t Fret About Debt for help.
Interest rates are usually in excess of 5000% although these companies would argue that the loans are for short term use only therefore the APR is irrelevant. Unfortunately, those who fail to clear the debt in full at their next pay would disagree, as they see the debt increase month after month with rollover fees & missed payment charges.
A New Solution?
Wonga, the largest payday lender who advertise on TV and radio have been trialling a 6 month loan among existing customers and this could be a way out, for those customers who are struggling with paying back the one month loan.
If you’ve been stung by the payday loan industry, let me know at firstname.lastname@example.org.
There is light at the end of the tunnel.