Payday loans Regulations Changed by Financial Conduct Authority (FCA) to Bring Sanity to the Payday Loans Market
The sustained media outcry in 2014 about payday lenders hounding borrowers got the attention of the Financial Conduct Authority (FCA). In response, the FCA took over regulation of the consumer credit market from Office of Fair Trading (OFT) and introduced a raft of measures to cushion payday loan borrowers from lenders that charged high costs for payday loans. These measures (which are now in place) are aimed at ensuring that payday loan providers such as cashfloat only lend money to borrowers who are able to repay it. The measures also seek to raise borrowers’ awareness of these kinds of short term loans in terms of costs and risks and provide easy ways to get help if financial difficulties come about. Some regulations FCA sought to change include:
- Prohibiting payday loan providers from collecting payment more than twice
Payday lenders typically utilize the Continuous Payment Authority models (recurring payment) to cash out money from borrowers’ accounts to pay back loans they’ve issued out to them. This model gives the lender the authority to automatically deduct the amount at any time they wish from your account as payday loan repayment. Although this may be an agreement, some lenders fail to give updates on withdrawal date and the exact amount withdrawn. This brings issues, especially if payday lenders withdraw more than required or withdraw money meant for priority bills such as rent, utilities, and mortgage. The new rule limits the number of times (to two) payday lenders can unsuccessfully try to withdraw from your account. They will instead have to contact you to get to understand the reason why the transaction is not going through.
- Restricting the number of times a payday loan can be rolled over
Most payday lenders work with a model whereby if you’re unable to repay your loan this month, you can roll it over to the following month. This rolling over is normally costly in the long run, since the roll over fee is added to your next month’s borrowing. The new rules limit lenders to only two roll-overs, cushioning you from debt accumulation, which can become unmanageable.
- Making it mandatory for payday lenders to make information about debt help available to you
Before the rules came into effect, payday lenders never provided information about debt help. Now they are required by law to do so. You can now get information about debt help for free prior to refinancing or rolling over a payday loan.
- All payday lenders are now required to display risk warning
The new rule stipulates that all payday lenders are required to display a new warning stating that late payments can result in severe money problems for borrowers. The law requires that the warning is displayed on every electronic communication and within non-electric media.
- Prohibiting part payments by Continuous Payment Authority
In addition to restricting the number of times, payday lenders can initiate failed withdrawal attempts through CPA; lenders will additionally be restricted to the amount of money they can collect. The rules now require Payday lenders to only withdraw money from your bank account through CPA if the account balance is sufficient. They are not allowed to take part payments any more. This will give borrowers a lot of control over their money because lenders cannot drain their bank account if the balance is not sufficient to pay the loan. If your account balance is insufficient, they are only required by law to make withdrawal trial twice, and that’s it. Any attempt to withdraw money for the third time will require them to contact you for explanation. Otherwise, going ahead with a third withdrawal attempt means they will be in contempt of law.
These new rules by the financial conduct authority have, without a doubt, cushioned payday loan borrowers from exploitation and harassment by payday lenders. Although there is still some outcry, sanity has at least come in the payday loan demographic. If you’re looking for a legit payday loan direct lenders that abides by all the above-mentioned regulations, then Cashfloat is your best bet.