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How the FCA are protecting consumers

You may have heard of the recent changes in Pay day regulations. But what does this mean for the payday loan market, where 1.6 million take out pay day loans every year?

We’re going to break down the impact the cap will have.

What are the changes?

  • Cap on total cost of credit
  • Clarifying affordability assessments
  • Clarifying continuous payment authority

What do they mean?

With the cap people will no longer have to pay more than double what they borrowed. In the past people were paying 3 times what they borrowed. Now interest and fees cannot be more than 100% of what was leant.

We have seen clients whose accounts have had funds taken out of their accounts more than once in a week. These payments are called Continuous Payment Authority (CPA). Now CPA’s can only be used twice on a client and there is an emphasis on the fact that clients have the right to cancel this.

Some Pay day lenders have already be fined for not carrying out affordability checks. Under new regulations all lenders have to take procedures to insure affordability. We’ve done some investigating, and this affordability check entails computer generated decisions based on income and credit score. The bright side of this is that clients will not be lent more than they can afford. On the downside, clients will not be able to improve their credit scores as lenders don’t base decisions on the credit report, which usually is more telling of a client’s credit history than the actual score.

Pay day loans used to be up to 4000% and have reduced significantly, but they’re still around 1000%. if you want to know more about how the FCA regulation change affects you, check their website. Alternatively have a look at Money Advice Service.

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