Have FCA HCST (High Cost Short Term) Regulations Improved the Loan Market?

Firtsly, the answer is YES, regulations have improved the loan market which now offers responsible lending however, it hasn’t improved responsible borrowing. Nearly every article you read now, regarding Payday Loans and Short Term Loans, contains a reference to “LoanShark” or “Predatory” which can be traced back to a regurgitated article from before the FCA introduced strict regulations on this industry.

Lazy sensationalism sells, so new articles about how much reform has taken place in this “Needed” industry sector, will be few and far between.

At least one of the latest articles in “The Sun” gave us the chance to respond to their “Part-Factual, Part-Sensational” piece.

 Here’s a brief overview of what has changed in this industry

Back in 2014, long-awaited regulations to the payday loan market recently were finalised, thanks to the FCA’s vigilance against consumer exploitation.

Now a closely-regulated industry, lending companies have to abide by a set of rules that ensure higher consumer confidence should consumers need to borrow money short notice.

Revolving around roll-overs, advertisements, affordability and the use of recurring payment, the improvement in this market is clear.

Newly introduced FCA regulations include:

Assessing Consumer Financial Health

Payday lenders must conduct thorough affordability checks on the consumer prior to loan provision (if at all). This regulation ensures that loan repayment is within the consumer’s means and they won’t face grave financial repercussions as a result of a poorly-advised lending situation.

LoanPig will conduct a credit check, as every regulated FCA firm should, but tend to look past your specific credit score and try to concentrate on what your actual current and potential future financial situation is, if we feel that by lending to you puts you in a worsened financial position or if you are overstretched already, as responsible lenders, we cannot lend to you.

Penalties for Non-Compliant Firms

Going forward, consumers can be more confident in the advertisements from payday lenders, as firms are now required to clearly display warnings, risks and information about where debt advice can be sought. The FCA can also take supervisory action should these regulations not be heeded.

Protection from Unfair Lending Practices

The FCA has now set the maximum daily interest rate to 0.8% per day, capping extortionate and unaffordable interest repayments in addition to the loan itself. By capping lenders’ default fee at £15, the FCA protects the more vulnerable customers and prevents further unnecessary financial exploitation.

The total cost of a payday or short term loan has also been curbed at 100%, meaning that you will pay no more than double the amount you borrowed to the lender.

Preventing Loan Roll-Overs

Previously a critical hit to financially vulnerable borrowers, loan roll-overs are now capped at two. This prevents consumers from gaining additional interest on continuous extensions which are granted when the loan cannot be paid by the original repayment deadline.

Thanks to the FCA, consumers can have more faith in payday lenders should they need to borrow money urgently. The regulations implemented in this market prevent the poorest from struggling with impossible interest rates.

General consumers are now well-informed regarding how lenders operate and are aware of the code of operation: something that many were in the dark about before the FCA acted.

If you have any questions about this topic please contact us