FCA administers the 2015 payday lending cure

As projected by the FCA (Financial Conduct Authority) the new regulations on the payday lending industry have kicked into gear. New rules for the payday industry are unprecedented for a financial sector that has enjoyed unregulated freedom for the past years. These changes include cutting interest, cutting fees and most of all radically changing pay back and default charges.

Initially, the FCA was reluctant to regulate the industry and was not willing to put a cap on Payday lenders as the Authority determined that there was now relevant data to back such a move. The changes came when politics turned its beady eye on payday lenders and their modes of doing business. Led by Walthamstow MP Stella Creasy, the campaign to regulate the industry led to the Labour party picking up the cause and Ed Milliband to begin his crusade against the Payday industry. The opposition had no choice but to pressure the FCA into put regulations in place. Thus the political pressure was relieved and the result is the regulation of an industry that has enjoyed an unchecked growth for the last 7 to 8 years.

The payday lending industry began its career years before the industry was made mainstream and actually given the name of Payday. Once companies began to appear on the scene of the financial sector the branding of Payday solidified. Once these companies began to publicise their interest rates, fees and charges, politicians turned their attention towards lenders and finally had an outlet to vent their anger on.

A broken economy, where borrowing on credit and taking out long and short term loans was more often than not the singular place that citizens could get their hands on the money that they couldn’t find anywhere else. This included a large portion of the population who were so desperate to pay simple household bills that they took out loans that they should not have because it was impossible to pay them back.

It is striking that the FCA was being advised during December 2014 by Policis, an independent consultancy that specialises in researching UK’s policy development, on evidence about the black lending market in the USA. It is interesting to note that this very same agency advised the Labour government ten years ago not to impose a cap or regulate Payday lenders based on research they had done on the continent.

Policis changed its tune this time around advised the UK is also facing the same problem of the growth in illegal lenders.

While black market lenders will become a problem now that the Payday industry has been regulated the question is where will those in need of a short term loan go? Ed Milliband and Stella Creasy can preach and point fingers, but shouldn’t the government be more concerned with the fact that the population can not afford to pay their bills?

Policis is an independent consultancy specialising in evidence based on policy development both in the UK and internationally. Bring research and wide-range understanding of issues to strategic planning in the public sector and to the development of public policy.