The Federal Conduct Authority is reshuffling the rules to make sure it fair to both parties—borrowers and lenders. On 1st of April 2014 witnessed the taking over of the consumer credit market from the Office of Fair Trading.
Ever since, it was no longer business as usual for payday lending companies in the UK.
The FCA cracked down on High Cost Short-Term Credit (HCSTC) lenders, and payday lenders were not left out.
There two core mission are to;
- make sure lenders only give loans to those who can afford to pay
- increase the awareness of borrowers on the risks and costs of taking up these short term loans and other ways to get out of financial difficulties.
The key changes include:
Limiting the number of times a loan can be rolled over
Rolling over a debt to many borrowers sound like a great idea, not knowing that it is only advantageous to the lender. This is, because whenever a borrower rolls over his/her debt extra interest and roll over charges are added to his debts.
Making it difficult for the borrower to pay off the initial debts and keep rolling it over. Under the new rules enacted by FCA, a borrower is only allowed to roll over his/her loan twice before the balance is due.
This covers the borrower from spiraling his/her debts if there is a reasonable reason for not meeting up with the repayment date.
Stopping lenders from trying to collect payment more than twice
Some payday lenders use Continuous Payment Authority to collect payment from borrowers’ accounts. It gives lenders the right to take money at any time from the borrower’s account to offset the loan.
In this aspect, what FCA is against lenders taking money from borrowers’ account without informing them, which pose as problems if the loan was taken ahead of other guarantor loans UK.
Debts like council tax, utilities, mortgage or rent should be taken out before payday loans since defaulting these debts leads to greater problems.
The new rule by FCA has it that lenders are no longer permitted to use CPA more than twice. Meaning that, they are limited to withdraw money from your account when it is not up to debt.
Banning part payments by CPA
Apart from reducing the number of times lenders can collect payment through CPA, FCA has also reduced how much they would be able to collect; which means they would only be allowed to collect payment via CPA, if the borrower has enough money to offset the debt in his/her account.
No more collection of part payment—even if the borrower’s account balance is insufficient, they would only attempt to collect payment two times.
Forcing lenders to give you information about debt help
The new rule totally scrapped lenders collecting fees for advising borrower— before he/she refinances or roll-over a loan, lenders are required to provide borrowers with information regarding free debt advice. This would be done by lenders for free without collecting a dime from any borrower.
Note that, the advice is only necessarily given to at the initial stage of taking out a loan but, only in the case of refinancing or rolling over a loan.