Recently, the Financial Conduct Authority (FCA) has finalised its review concerning the high-cost consumer credit industry. This review states that the FCA is pleased with its current status.
On April 1st 2014, The Office of Fair Trading passed on the baton as the regulator for consumer credit in the United Kingdom, including both credit cards and loans, to the FCA. One of the main aims was to provide a solution to the widely criticised payday loans industry which has been accused of charging sky-high interest rates unnecessarily.
Several years after the FCA’s take over from the Office of Fair Trading, mass improvements were made which they are extremely happy about. These improvements in conduct resulted in approximately 760,000 borrowers saving a total of £150 million per year. In addition, companies are now much stricter in their regulations and are far less likely to lend to those who they deem unable to repay their loan.
Changes Implemented by the FCA
The first change which was introduced by the FCA was essentially a price cap which aimed to limit lender charging more than 0.8% per day, which is equal to a total of £24 per £100 borrowed. The intent behind this was to reduce the high rates which were being charged by lenders and overall ensure that a borrower would never have to repay double the amount which they took out as a loan.
Additional changes made include a cap on default rates at a limit of £15 and this can only be charged on a one-off basis. Those brokers and/or lenders who are offering a shirt term loan will be required to undergo a rigorous application process in order to become FCA authorised. As a result, hundreds of unfit and irresponsible companies offering loans have had no choice but to leave the industry – it is now a safer space thanks to the introduction of the FCA.
In terms of lenders, there is a more selective criterion which is protecting those that were previously vulnerable.
The new regulation means that the applicants and consumers will now have access to far more affordable rates of interest and it is guaranteed that lenders are fit to offer the loans. There is now a sense of trust instilled between consumer and lender.
Lending companies such as Cashfloat, Uncle Buck and Next Credit state that they welcome the new relation implemented by the FCA. Recent reports from the regulator said that they were ‘happy’ with the implementation and do not plan to revisit it until 2020.