Payday Loans FCA Regulations
The Financial Conduct Authority regulates financial firms within the UK to protect consumers and ensure the UK financial markets remain honest and fair.
The FCA took over the regulatory duties of the Financial Services Authority (FSA) on the 1st of April 2013 after having received royal assent. The FCA has introduced new financial regulations to stabilise the market and protect payday loan customers.
Most recently, the FCA is introducing payday loans price cap regulations which are due to take effect as of January 2015 The introduction of price cap will protect consumers from accumulating increased debt from further high annual percentage rates and fees.
Payday loans and the problems faced by the consumer
Unfortunately there have been many cases where customers are unable to pay back the loan in the agreed time period, so end up having to hold the loan for longer, which in turn allows the high APR to take effect. Some lenders charge as much as 4000% APR, and this can land customers in financial hardship if they can’t pay back the loan on time. Borrowers will then have to pay back well over double the amount they originally borrowed. Many people have been granted loans by companies that know full well that the person will not be able to pay back on time. This is not a responsible leading practice as it increases the customer’s debt to an unmanageable level.
FCA payday loans and the price cap
The new FCA regulations will put a price cap on the maximum amount a customer should repay. Starting in January 2015 customers should never have to pay back more than double the amount they originally borrowed. For example if a customer takes out a loan for £300 over the course of 3 months, then the maximum amount that customer will pay back including the amount borrowed and any additional fees would be £600. Along with this the interest rates for payday loans should never exceed 0.8% per day.
For many people the struggle to re-pay payday loans will come to an end in January with the introduction of the FCA regulations. The reduced daily interest rates will make it cheaper and easier to borrow and repay payday loans. For people who struggle to pay back these loans the price cap on the amount that should be paid back will come as a great relief.
The FCA are proposing 3 main changes to the payday loans industry
- The maximum daily interest rate will be reduced to 0.8% per day.
- The maximum default fees will be capped at £15. This will protect customers that struggle to pay back their loan from getting into further debt.
- The maximum total cost of a payday loan will be capped at 100%. This means that customers will never have to pay interest that exceeds the loan amount.
The FCA estimate that by putting these regulations into place for the payday loans industry, customers will save on average £193 per year a total of £250 million.
FCA’s research into designing a price cap
The introduction of these price caps are designed to protect customers from extortionate fees, fines and repayments that will inevitably land them in more debt. The caps are also designed to allow responsible and fair lenders to keep trading.
To introduce these caps the FCA carried out extensive research which involved;
- Analysing the impact on firms and consumers post cap by analysing 8 firms and 16 million loans
- Analysing the alternatives people go to if they can’t get payday loans. This was done by looking at the credit records of 4.6 million people
- Understanding the impact on people that apply for payday loans and the people that don’t make it through the approval process. This was done in a survey of 2000 customers.
- Conversation with overseas regulatory bodies that have similar caps in place
- Consumer and industry discussion groups
(The majority of firms currently charging over 0.8% per day)
Payday loans and a history of the FCA’s regulations to date
The industry has grown rapidly in recent years due to peoples demand for quick and easy borrowing and these regulations have helped millions of customers not get stuck in debt.
In April 2014 the FCA introduced a requirement for lenders to assess the creditworthiness of a customer before entering a credit agreement. In July 2014 the unsuccessful Continuous Payment Authority attempts were limited to 2 and part payment requests were prohibited In January 2015 the price caps will be introduced.
What does this mean for wizzcash.com payday loans?
We have always operated within the FCA’s price cap charging 0.80% per day which makes us one of the cheapest lenders in the industry. At Wizzcash.com we have always aimed to be a responsible lender and praise the FCA’s progress towards a safer and fairer payday loans market.