New Rules For Payday Lenders Come Into Force Payday loans
Payday lenders will no longer be able to renew loans more than twice or carry out continuous raids on borrowers’ bank accounts to recover their cash following the introduction of new rules by the financial regulator.
The rules, which come into effect on Tuesday, July 1, are designed to deter lenders from offering loans to borrowers who cannot afford to repay them over the original term, and to protect those who struggle with the loans. reimbursements against increasing costs.
Payday lenders, such as Wonga and Money Shop, offer short-term loans over several days or weeks. They argue that annual interest rates above 5,000% are misleading because debts are paid off before interest accumulates, but fees can quickly add up if debts are rolled over or repayments are missed. .
The Financial conduct authority resumed regulation of the industry in April, but gave lenders a grace period to comply with its new rules. Under the new regime, lenders will be prohibited from allowing borrowers to roll over their loans more than twice, and will have limits on the number of times they can attempt to collect repayments from customers’ bank accounts.
Britain’s most famous payday lender, Wonga – who was named and humiliated last week for sending letters to distressed borrowers on behalf of bogus law firms – said only a small proportion of its clients would be affected by banning lenders from renewing their loans more than twice. The company said that according to its latest figures, 4% of loans have been extended once, 1.4% have been extended twice and only 1.1% have been extended three times, while 93.5% have never been renewed.
Collecting loans through a Continuing Payment Authority (CPA) from a borrower’s bank account has been controversial, with some consumers having no money to spend on essential items.
Some lenders have repeatedly used CPAs in an attempt to get their money back, attempting a partial payment if their full repayment request is denied. As of Tuesday, lenders will only be able to make two failed attempts to collect money through a CPA and both must be for full repayment; after that, they have to contact the borrower to discuss their account.
The debt counseling charity Stage change said the new rules were an important step in addressing some of the industry’s failings, but added that the FCA should go further by limiting renewals to a maximum rather than two. He also said that if lenders fail to get the funds back on the first attempt, it should be taken as clear evidence that a borrower is in trouble, and a second attempt should only be made once they are in trouble. ‘it was established that it no longer presented a risk for the client.
The charity also wants more of an effort to tackle the problem of multiple payday loans after meeting 13,800 people who had five or more payday loans last year.
Russell Hamblin-Boone, Managing Director of the Consumer finance association, who represents some of the largest payday lenders, said members are fully committed to abiding by the new rules.
“The industry has already changed dramatically for the better, and short-term lenders are now leading the way with initiatives like real-time credit checks.
“However, over-regulation is a real risk, as it will reduce consumer choice and make them vulnerable to illegal lenders. With tighter affordability controls in place, 50% fewer loans are made than there were. is one year old, and we are already seeing the major lenders exiting the market.
“Those who remain face the prospect of government price controls. So despite borrowers constantly telling us how much they like and appreciate short-term credit, if the regulator turns the screw too far and drives reputable lenders out of the market, those borrowers will be forced to look elsewhere for credit and this creates a perfect market for illegal lenders. “