The legal status of payday loan companies is rarely out of the news, with repeated calls being made for more regulation over how APR can be capped, as well as for providers to be transparent in terms of their advertising. Payday, or short term loans, typically represent small amounts of money that are repaid after your next wage packet, and are distinguished by being easy to apply for and receive, and by their high rates of interest. Why, then, has there been such a demand for regulating payday loan companies, and how can you identify companies that have high standards for delivering quality loans to consumers?
Much of the call for regulation around payday loans has focused on making it harder for consumers to be drawn into a cycle of debt. Under the Consumer Credit Act of 2006, and via regulations set out by the Office of Fair Trading, transparency and restrictions on hidden fees are strongly encouraged, although formal regulations and penalties for payday lenders still operate something of a legal grey area. Potential changes that could be made by the government to payday lending could include cooling off periods, and the creation of lending databases to prevent people from borrowing from multiple payday loan companies at once.
A July 2013 summit will re-examine the status of payday loans, particularly when it comes to advertising and any claims that consumers have been misled over how much they can expect to repay. From April 2014, responsibility for regulating payday loan companies will be taken up by the Financial Conduct Authority, with rules in place for resolving compliance issues with different companies, and harsher penalties for breaking these terms.
One of the challenges facing the payday loan industry, then, is whether fair lending practices can be maintained when the market has grown so much - reputable companies that offer relatively high risk but transparent loans have to contend with situations where it can be difficult to fully screen borrowers that are amassing huge amounts of debt, or who are borrowing from payday lenders without realising how much they eventually have to repay.
The Office of Fair Trading is keen to make it easier for consumers to identify which payday lenders are more responsible than others, and are also encouraging the use of comparison sites to find better deals, while looking into how certain companies are creating an anti-competitive bias within the lending market. Making it more difficult for new payday loan companies to potentially exploit customers that might otherwise have received favourable terms elsewhere is also a priority.
Being aware of the best payday loans available means having the tools and resources to find out what deals are available. Using comparison sites such as MoneySupermarket and loan services like SwiftMoney is particularly important, in this respect. For example, when you apply for a payday loan through SwiftMoney, you’ll be given the best terms from a range of different payday lenders, meaning that you can save on having to manually go through all of the different borrowing options available.
To return to the original question of whether there should be more regulation, it’s arguable that tighter controls are needed to stamp out the worst excesses of the industry, whereby some payday loan companies don’t provide enough information to borrowers, or mislead consumers over fees and repayment periods. Companies that do stick to regulations and promote customer charters, which include SwiftMoney, are more responsible and reliable when it comes to taking out a short term loan. Checking the market, and being wary about taking out more than one loan at any one time, can help you to make a more informed borrowing choice.