How Payday Loans Have Become a Better Option after the FCA Regulations

Payday loans used to have a bad reputation in the lending market, mainly because of the lenders acting on their free will. Payday loans in UK were not regulated initially, which means that lenders could charge as much fees and interest rate as they liked, and they could also use malpractices for loan collection and rollovers. All this led to a lot of borrowers complaining and reporting bad lenders.

Complaints Regarding Problems Related to Payday Loans Decreased By 45%

But when the FCA came in action, it regulated the payday lending industry with heavy and very strict rules. This not only caused numerous payday lenders to close down, it also made payday lending a better alternative for the borrowers. And this has resulted in a good news that within the last few months, there has been a 45% decrease in the number of complaints for payday loan problems.

How the FCA Regulations Improved the Payday Loan Scenario

The FCA had imposed rules on the payday industry in January 2015, thus capping the fees and interest rate charged on all the short-term high-cost credit loans. A cap of 0.8% per day for the borrowed amount was set for all the lenders. Also, in case of late repayment, the lender is not allowed to charge more than £15 as default charge, and the total cost of the loan including interest and fees has also been capped at 100% of the original sum, whereas the percentage was mostly above 300% before the regulations. These new rules led to a steady decline in the problems faced by borrowers with regard to payday loans in UK.

Other High-Cost Loans Should Be Regulated Too

This also calls for other high-cost loans, like guarantor loans and logbook, to get regulated by the FCA as they are also harmful to the borrowers who are unstable financially. These loans too were reported by the borrowers as charging excessive fees and high interest rates, plus the aggressive behaviour from the debt collectors.

A guarantor loan is a credit granted to the borrower who has to get a friend or a family member to pose as the guarantor for the loan, meaning that the guarantor will pay the loan back in case the borrow is not able to repay on time. Reports have shown that the lenders don’t do a proper check to verify whether the guarantors have actually agreed to be the guarantor. Also, verification regarding the financial details of the guarantor is not done too, which means that it is possible that the guarantor might not be able to afford to pay the loan back for the borrower.

Citizens Advice chief executive Gillian Guy, chief executive of Citizens Advice, remarked that borrowers are going into debt due to the irresponsible lending practices, and the major drop in the number of complaints is a good news for everyone. He further added that payday loans in UK are not the only blight, but logbook loans as well as guarantor loans too are creating havoc in the financial life of the borrowers. For the welfare of the borrowers, a watchful eye must be kept on the payday lenders.

Check Must Be Kept on the Payday Loan Advertisements

Many lenders have been seen promoting payday loans as a source of credit with which borrowers can go on a holiday, a shopping spree, parties, buy gifts, expensive meals, etc. Such advertisement is also a type of irresponsible lending behaviour. The Broadcast Committee of Advertising Practice (Bcap) has released a guidance on how the payday loan TV ads should be like. This guide has been made to prevent the lenders from showing payday loans as a fun-going and easy way of credit, while hiding the high-cost serious nature of it. This guide was released after Wonga, a popular payday lender, released a new ad campaign that showed ''hard-working dinner ladies and mums''.

According to the Bcap, advertisements must be responsible too, and loans should be shown as a serious commodity to be used for emergencies and not non-essential spending. The guidance states that the ads will be verified and assessed on the basis of their overall context. Also, humorous or light-hearted songs too can distract the audience from the seriousness of payday loans in UK, hence they should be carefully used.

Payday loans should be used carefully for unexpected bills. But if an ad emphasises on the speed of loan approval, then it can turn out to be a distracting content too. Ads like ‘Get Payday loans within 24 hours’ can hide the serious factors hidden behind the instant approval of these loans.

Bcap, while reviewing the payday loans TV ads, stated that to avoid doubt, ad makers must avoid exhorting children to request their parents for borrowing a payday loan to buy them expensive things.

But as for the present, broadcasters are required to judge the ads and their schedule responsibly to avoid wrong positioning of other product ads with payday loans ads, especially with the products that are targeted towards children.

So Should Borrowers Borrow Payday Loans?

Of course, payday loans in UK are one of the best possible credit sources in the finance industry. They help you out during urgent monetary needs and are easily paid off on your next payday. But they can harm you too if not utilised carefully.

The FCA has done an extremely good job by imposing strict rules on the lenders, but the borrowers need to be careful too. As a responsible borrower, it is your duty to assess your financial situation to see whether you can afford to borrow a payday loan or not. If not, you should better not take risks, as it may cause you a lot of unnecessary debt. Remember, never ever borrow a payday loan for daily uses. Keep yourself educated about the risks of taking payday loans, and keep yourself away from debt and loans as long as possible.