It has been a little over 18 months since the FCA introduced their ruling on the
payday loan industry. The ruling has meant that chargeable fees are capped on
any high cost short term loans. The cap of 0.8% per day with a default charge
cap set at £15 was welcomed by many as a means of regulating the otherwise
apparently rogue payday loan sector.
Also part of the new rules was the fact that a borrower can no longer be charged
more than double the original amount taken out.
In terms of a moral standpoint some would argue that the capping was long
overdue as the payday loan industry is responsible for getting those that
can’t afford it into huge amounts of debt. The industry itself was recorded as
being worth in the region of £2.5 billion across 1.6 million borrowers in 2013
ahead of the new capping. This means that the industry back then was worth an
awful lot and as such some might expect an unwillingness to change amongst
In actual fact what was seen ahead of the regulations coming into force was that
the main suppliers of payday loans already complying with the new caps by
bringing their prices in line with the requirements. The industry also witnessed
the more, what could now be described as, unscrupulous lenders shut down ahead
of any regulatory need to follow the new capping levels. What this presents is
that the industry was in fact ready to accept the required changes and be
complicit with them.
As early as June 2015, just 3 months into the new rulings the Citizens Advice
Bureau released figures which showed that complaints to them about payday loan
companies had almost halved based on the previous years’ figures. This
demonstrates that consumers too were more satisfied with the service and charges
provided by these short term loan companies.
The benefits of the FCA rulings on payday loans are two fold to consumers and
lenders alike. For lenders the volume of reckless lending organisations has
reduced narrowing the field in terms of competition. For consumers they now have
greater awareness of what payday lenders can and can’t do without their
express consent – for example access their bank account to deduct payments
automatically. It has also meant that more stringent checks are now made to
determine how affordable a payday loan is for a particular individual. With more
checks and lower costs all the signs point to payday loans becoming a legitimate
alternative rather than a slur on the financial services industry as a whole.