Cap on rollovers for payday lenders in the UK

In what is expected to be the biggest overhaul in the consumer credit industry in over four decades payday lenders face a cap on rollovers and on compulsory affordability checks.

The Financial Conduct Authority (FCA) will take over regulation of the consumer credit market from 1st April and has published their new rules.

  • Rollover on short term loans will be limited to two rollovers
  • Swift fines will be imposed on payday lenders breading the rules
  • Payday lenders will be allowed to take only two payments from a customer’s account using a CPA
  • Rules will be applied to all companies providing credit facilities including dental practices and retail store cards, not only to payday lenders

Only two rollovers allowed for each borrower of short term loans

Payday lenders will not be allowed to roll over loans more than twice and the lenders will be obliged to supply clients with information on how they can get advice on becoming debt free.

Lenders will also be obliged to carefully check potential clients to ensure they can afford to pay back their short term loan before they can give loans. This falls under the new rules which are aimed at cracking down on poor practice among payday lenders.

CPA’s restricted to two

Continuous payment authorities, also known as CPA’s, will be restricted to two for each short term loan. A continuous payment authority allows a payday lender to take money out of a borrower’s account.

Lenders of short-term loans will also be obliged, under the new rules, to provide financial health warnings online as well as in any other electronic advertising or promotions. They will also be required to instruct customers on how to obtain free debt help once the FCA is in charge of consumer credit in the UK. Payday lenders will also be required to include risk warnings regarding debt in any television and print advertising. This rule will be implemented from the 1st July this year. Payday lenders and other financial firms involved will have time to adjust their systems for the changes since the new rules only come into force from 1st July.

The FCA says that “no more than half” of any payment from a client from the first month of any debt management plan should be allocated to the financial firm’s fees and charges. This would include any set-up costs incurred.

The FCA has announced that “anyone who applies for credit and all companies who supply credit will be affected and the number of firms who are under the FCA’s watch will triple once the transfer of consumer credit regulation from the OFT is completed”.

The Quick Loan Shop is registered and transparent and we welcome any new laws enforced by the FCA which will help clean up the loans industry.