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FCA Takes a Step Further at Safeguarding its Consumers

The Financial Conduct Authority (FCA) has set new rules for the pay day lending industry. One of the most important rules to affect both borrowers and lenders equally is the clause that asks lenders to emphasize on the borrowers’ affordability before lending easy cash. In addition, there are also other rules that largely affect all and the payday loans industry may have mixed reaction to the new rules. Lenders who have been doing responsible business may not face so much of a problem as their irresponsible counterparts.

The FCA’s intent in making new rules is to make borrowing and repayment fair for the borrowers. The Chief Executive at FCA has expressed his expectations from lenders in conforming to the new regulations. The new rules strictly sets down that lenders have to verify the affordability of borrowers. Till date borrowers have seldom been asked about their financial background when they applied for a loan.

Other Rules

  • Loans may be extended or rolled over only up to twice.
  • Lenders are limited to two attempts at taking money out of the borrower’s account with the help of a Continuous Payment Authority (CPA).
  • If borrowers want to extend the loan, it is the lenders responsibility to let them know about free advice on debt.
  • It is in the power of the FCA to order changes to ambiguous adverts or remove products that do not have the best interest of the borrowers in mind.

The FCA does not intend to stop borrowers from borrowing payday loans but only to flex the rules in a manner that is in the best interest of the borrowers. They are afraid that if payday lending stops altogether then borrowers may get into further trouble because that may resort to borrowing money from loan sharks.

Caps and reimbursements

The FCA might, in the future, consider putting a limit or cap on the rate of interest lenders charge but currently they are not setting out any such rules. FCA had also expressed its plans for refunds from rogue lenders wherever necessary. Firms with unlawful or unregulated policies and practices may be closed down if required.

With the new rules in practice, a lot of unlawful lenders have closed down shop while others conforming to the rules continue to do business successfully. This is in the best interest of the consumers and also in an attempt to stop rogue lenders from taking advantage of the borrowers who need desperate financial aid.

Setting a standard

The FCA aims to keep only standard firms in the business so that proper business ethics is practiced. Since the new rules became effective, many companies have been known to leave the market but hundreds of others still continue to do business. Under the Consumer Finance Association standards, borrowers failing to pay back their money for longer than 60 days, have the amount they owe, frozen. CFA Chief Executive, Russell Hamblin-Boone said that CFA has always been in favor of well-designed regulations to look after its consumers in a responsible manner.