BRITAIN: ‘ FCA REGULATOR IMPOSES PRICE CAP ON PAY-DAY LOANS ‘

#AceFinanceNews – BRITAIN – Nov.09 – The City regulator is imposing a price cap on payday loans to help prevent borrowers being ripped off.

The FCA moves to limit costs in the short-term credit market, saying its rules will make it fair for both lenders and borrowers.

The FCA moves to limit costs in the short-term credit market, saying its rules will make it fair for both lenders and borrowers.

The Financial Conduct Authority’s (FCA) initial cost cap will come into force on 2 January, set at 0.8% per day.

The watchdog said that would lower costs for most borrowers, explaining that for all high-cost short-term credit loans, interest and fees must not exceed 0.8% per day of the amount borrowed.

Fixed default fees will be capped at £15 to help protect borrowers struggling to repay.

A total cost cap of 100% was aimed, the FCA said, at shielding people from escalating debts and it meant that borrowers must never have to pay back more in fees and interest than the amount borrowed.

The regulator said the changes would ensure that someone taking out a loan for 30 days and repaying on time will not pay more than £24 in fees and charges per £100 borrowed.

It announced the changes in July but put the conclusions out to consultation to try and ensure they were fair.

Source: 

#AFN2014 

#borrowers, #credit, #debt, #lenders, #loans, #payday, #regulator

OFT has opened formal investigations into several payday lenders over aggressive debt collection practices.

A shop window advertising payday loans.

A shop window advertising payday loans. (Photo credit: Wikipedia)

The OFT has opened formal investigations into several payday lenders over aggressive debt collection practices. It is also today writing to all 240 payday lenders highlighting its emerging concerns over poor practices in the sector.

These actions are set out in a progress report published today as part of the OFT’s compliance review of the payday lending sector. It highlights concerns about:

  • the adequacy of checks made by some lenders on whether loans will be affordable for borrowers
  • the proportion of loans that are not repaid on time
  • the frequency with which some lenders roll over or refinance loans
  • the lack of forbearance shown by some lenders when borrowers get into financial difficulty
  • debt collection practices.

The OFT is continuing to gather and analyse information about the activities of payday lenders as its compliance review progresses. It also expects to warn the majority of the 50 firms inspected, which account for the majority of loans, that they risk enforcement action if they do not improve specific practices and procedures which came to light when they were inspected. The OFT will require those lenders it warns to provide it with independent audits to verify that they have improved their practices and procedures to comply with legal obligations and expected standards.

The emerging findings are based on information from a wide range of sources, including:

  • a ‘sweep’ of the websites of 50 payday lenders
  • a programme of inspections of over 50 individual lenders
  • 686 consumer complaints
  • a mystery shopper exercise involving 156 online and high street lenders
  • 1,036 responses to a survey of businesses, trade associations and consumer bodies.

They have uncovered evidence that some payday lenders are acting in ways that are so serious, that they have already opened formal investigations against them. It is also clear they have said, that across the sector, lenders need to improve their business practices or risk enforcement action.

‘Their report shows that a large number of payday loans are not repaid on time. I would urge anyone thinking about taking out a payday loan to make sure they fully understand the costs involved so they can be sure they can afford to repay it.

‘Their revised guidance makes it absolutely clear to lenders what they expect from them when using continuous payment authority to recover debts and that we will not accept its misuse.’

The Consumer Credit Act 1974 requires most businesses offering credit, lending money or involved in activities relating to credit or hire, such as debt collectors, to be licensed by the OFT. The OFT produces guidance to clarify its expectations of those companies and individuals that hold a consumer credit licence. Failure to have regard to OFT guidance can call into consideration the business’ fitness to hold a consumer credit licence.

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