Capped! Legislation for payday lender sector has been passed

Legislation for the payday sector in the UK has officially been passed. As of January 2015, payday lenders will be restricted in the fees, charges and interest rates that they can impose on their customers. Payday Lenders will not be able to continually roll over loans when clients can’t repay their loans, and they will have to stick to a set interest rate. These new regulations are aimed at giving the industry a sense of transparency that will allow both the lender and the borrower an overview or the short term credit agreement that is being entered into.

The problems that have surrounded the payday sector in the last ten years, especially in the UK, have basically had to do with the great number of people taking out short term high interest loans when, in fact, they were not in any position to pay them back. These people are typically financially vulnerable, very poor, and for the most part already in serious debt. For a long time credit checks were not carried out in great detail and it was easy for this sector of the pubic to get a payday loan approved even with a poor credit rating. Another issue that was not being addressed until recently was real-time data sharing between the lenders themselves. People could go from one lender to the next taking out loans without the payday lender knowing that the person had several loans with other lenders. This obviously posed a problem as people began to borrow from one lender to pay the other. For the financially challenged man with several payday loans, no job and no way of paying the loans back, it is pure torture to watch the loans roll over an over, double, triple, quadruple. Thus regulation has come at last.

For those who have been vehemently against the payday industry since the get go, this is possibly a triumph of sorts, although there are many that would see this part of the financial sector disappear altogether. The FCA (Financial Conduct Authority) is the body that is in charge of creating regulation for the payday trade and has been able to make subtle changes that protect both the industry and the borrower. The only concern now is where will the poor man go to find immediate short term credit?

Payday loans not very different from mainstream borrowing

Although Credit Unions hope to take over and look after this specific demographic, these people do not really have anywhere to turn. The reality is that mainstream borrowing options are actually not much different from payday loans. Take an overdraft on a Halifax standard current account and borrow 100 pounds for 28 days. This will cost you 28 pounds. A generic payday loan for the same amount and time will cost you 25 pounds. In fact Halifax will charge you 5 pounds for each day that your account is over the limit without it being agreed upon. Forget to tell your bank that you want to extend your limit for 5 days and you have incurred 20 pounds in fees.

In 2012 the people of the UK took out 8.2 million new short term high cost payday loans, according to the Office of Fair Trading. Yes! Let’s regulate this industry because it seems that it is sorely needed.