Out of pocket, out of mind: FCA clamps down on payday loans

The ethics of payday loan providers have been under scrutiny for many years and now the FCA is undertaking regulation of this. Nader Beshara explores the future of pay-day loans.

For several years now payday loan companies have been flirting the moral spectrum, their ethics have been deemed unscrupulous, yet they have been able to hide under the veil of regulation.

However, this is now set to change.

FCA Intervention

Martin Wheatley - FCAThe FCA is taking over the regulation of credit providers and debt management firms from the Office of Fair Trading.

Their agenda is to implement stricter measures on credit firms. They aim to do this by way of regulation which includes; limiting the number of times a customer can rollover a loan, improving affordability checks, and controlling attempts to extract repayment from borrowers’ banks accounts.

The ethics of pay-day loan providers have been under much scrutiny for many years, due to them making huge profits from people who were struggling to pay the money back. Superior powers of the FCA enable them to order refunds and ban misleading advertisements. Primarily, the virtuous motive of the FCA is to deal with the extortionate charges and prevent people from falling into the morbid whirlwind of debt cyclically.

Martin Wheatley, the chief executive chief of the FCA, said that their process will “force out about a quarter of the firms out of the industry, and that’s a good thing, as those are the ones that have poor practices.” The FCA has estimated approximately 50,000 credit companies under this remit, of which 200 are payday lenders.

Will it work…?

Criticism of the new regulations is that it still doesn’t provide potential customers with an ultimatum. Russell Hamblin-Boone, from the Consumer Finance Association, the trade body of payday loan firms, claimed that “driving out pay lenders won’t stop the demand.”

The demand for the loans is still there, consequently, despite rigorous regulations, people will remain to seek financial aid in their time of struggle. Ultimately, without such lenders, people would be forced to take loans from “less reputable” and potentially unregulated sources.

What do you think about the regulation of payday loans by the FCA? Will it work? Tweet us your opinion, or join in the discussion via LinkedIn

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