New rules for payday loan lenders come into effect
Good news! – sort of – As of the 1st July 2014 new rules from the UK financial regulator have been introduced into the payday loan market to reduce the number of rollover loans that can be applied to a customer’s loan.
Rollover loans new regulation for the likes of Wonga and Money Shop
The new regulations mean that lenders won’t be allowed to rollover the loan more than twice.
These rules which came into force on Tuesday 1st July are aimed primarily at deterring lenders from lending to borrowers who cannot afford or will struggle to pay back their original loan.
Payday lenders, such as Wonga and the Money Shop, offer short-term loans arranged over days or weeks. They argue that annual interest rates in excess of 5,000% are misleading because debts are paid back before that much interest accrues, but charges can quickly add up if debts are rolled over or repayments are missed.
The Financial Conduct Authority who took over regulation of the market in April 2014 has banned lenders form allowing borrowers from rolling over their loans more than twice. In addition it has restricted the number of times a lender can attempt to remove funds from a borrowers account.
Our largest payday lender, Wonga – the payday loan company recently hammered by regulators with a large fine for sending letters from fake law firms to it’s customers – reckons the new rules will only impact a small number of it’s borrowers.
Continuous Payment Authority (CPA)
Continuous Payment Authority or CPA’s have had a controversial role in making the payday borrower unable to pay for even the basics after raids on their bank accounts by lenders. With the introduction of the new rules a lender will only be able to make 2 unsuccessful attempts to remove money under the CPA and this will only be allowed for the whole amount of the outstanding repayment. After this time the lender must contact the borrower and there will need to be a discussion about a repayment plan.
The debt charity StepChange would like the CPA rollover to just be once rather than twice – saying that if payment cannot be made the first time then this is clear indication of debt issues.
However some have said that over regulation may be an issue as it will undoubtedly reduce choice for the consumer which would not be in the interest of the consumer.
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