Benefiting consumers and genuine lenders
On the 1st April 2014 the Financial Conduct Authority (FCA) took over the regulation of consumer credit from the Office of Fair Trading and is bringing in tough new rules for the market. Affecting approximately 50,000 firms, the new regulations will help the FCA to protect consumers and give them stronger powers to clamp down on poor practice.
With the UK’s consumer credit market totalling £200 billion a year, the regulation is a welcome change to both consumers and genuine lenders. The FCA has said that it will protect borrowers from rogue firms and make sure that lenders treat their customers fairly.
There are two goals for the new FCA regulations: to ensure that firms do not lend money to those who cannot afford to repay; and to increase borrower awareness of the risks and costs associated with payday loans.
Some of the key changes that are being made by the FCA are:
Putting a limit on rollovers
Individuals will only be able to roll over a loan twice before their balance becomes due, protecting them from spiralling debt while still providing them with some flexibility to extend their loans under certain circumstances.
Regulating continuous payment authority attempts
Under the FCA’s new rules, payday lenders are also only limited to two failed Continuous Payment Authority (CPA) attempts. They cannot keep trying to withdraw payment from consumers when the funds are not available. Instead, they must contact the customer to discuss their situation and try to collect payment. However, the limit will reset if a consumer decides to roll over or refinance their loan.
Banning of partial continuous payment authority payments
Payday lenders are now only able to collect a payment using CPA if consumers have enough money in their bank accounts to completely cover what is owed to them. Lenders can no longer take partial payments. Consumers will still be able to make lesser payments themselves or give their consent for lenders to take different amounts from their bank accounts.
Help for lenders to manage the change
Lenders will now be closely monitored by the FCA and will be penalised if they are found not to be putting customers first. It has been reported that half of payday lenders may be driven out of the market following these new rules and restrictions.
Furthermore, all lenders must clearly display a risk warning on all of their electronic communications. From 1st July 2014 this must also be displayed within all non-electronic media. Firms may obtain support from risk, regulatory and compliance companies, which can provide them with a risk strategy and compliance framework.