On the 1st of January 2015, the Financial Conduct Authority (FCA) introduced new tougher regulation on Payday Loan Companies which established clearer terms on the amount that could be charged for a loan and any fees accrued. This has created clarity for borrowers, whilst also offering those who need to use the service more protection. The new regulation means that people must be able to demonstrate that they can afford to repay the loan before they take the loan out.
There are now around 70,000 people who would have previously been able to access the payday service, but who now can no longer do so due to this new regulation.
The FCA feels that those who can no longer access payday loans wouldn’t have been able to pay the loan back and therefore aren’t taking on unmanageable debt. Whilst this favours safe and responsible lending, these people still have the need to borrow and by not being able to do so through payday lending, they are now seeking credit though alternative means.
One of the most prominent lenders looking to cash in on those in hardship and dubbed ‘the next Payday Lender’ are companies that offer loans with a guarantor that at present don’t fall under the FCA regulation imposed on Payday lenders.
Companies offer loans of up to £12,000 for up to seven years at APR s as high as 54.9 %. If a borrower is paying 54.9% APR for seven years, the total amount repayable is going to be way in excess of 100% more than the sum advanced.
So, whilst the FCA regulation has worked in providing greater levels of protection for vulnerable borrowers in the Payday sector, less restricted lenders are vying to take their place in a desperate market.
The worry comes as reports suggest that demand for credit has been on the rise in the months leading up to Christmas leaving many families starting the new year in the red.
If you find yourself struggling with debt this New Year, whether its business or personal debt – we can help. There are a range of solutions available which include both formal and information solutions such as Debt Management Plans (DMP), Individual Voluntary Arrangements (IVA), Bankruptcy as well as solutions for Businesses.
There is also free debt help and advice available through a variety of debt charities. For more information, we recommend you visit www.moneyadviceservice.org.uk.
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