Published on July 12th, 2012 | by Pete0
Pressure Pays Off – Payday Loan Reform
Payday loans companies have been under increasing pressure to regulate their services so that customers don’t get stuck in a spiral of debt which is simply impossible to pay off. The UK is one of the only countries who don’t regulate this industry as both Europe and the US have introduced various restrictions. Stella Creasy, Labour MP has been resolutely campaigning against payday loans for a long time, therefore the agreement reached between the government and the four trade associations representing 90% of payday lenders to voluntarily agree to some regulations, will be met with triumph.
The main criticisms of payday loans are that they charge high rates of APR ranging between 1737% and 5000%. The maximum amount of money which can be borrowed via one of these lenders is £1000 therefore the repayment implications are enormous. The other major criticism is that the loan repayments can be ‘rolled over,’ i.e. postponed as many times as the customer likes. The consequences are that each time the loan is rolled over, the customer incurs another month’s interest.
Both of these aforementioned instances equate to a situation where the consumer has incurred so much debt that they are simply unable to repay it, and either end up repaying it for the rest of their lives, or borrow another loan to repay their first loan. The latter means that, all the customer is doing is moving the debt, rather than resolving it which is worrying given that one in four payday loan consumers has more than one payday loan.
These issues have finally come to fruition and have been the subject of much debate between the government and the body representing 90% of payday lenders. The payday loans industry is desperate to continue trading therefore have bowed down to these external pressures and agreed to introduce the following measures:
- A good practice customer charter explaining how the loan works and the costs involved
- A commitment to inform customers three days before money is withdrawn
- Increased transparency about loan repayment so that consumers can make informed decisions and are not surprised by hidden payments
- More help for customers in financial difficulty by freezing charges and interest
- Robust credit and affordability assessments to ensure loans are suitable for the customer’s situation
- Effective compliance monitoring by the Trade Associations to root out poor practice in the industry
The key points to note are that customers who are experiencing problems repaying their loan are entitled to have their balances frozen and that loans are only awarded to people who can afford to repay them. These measures will go live on 25th July 2012.
About The Author: Laura Susstance is a content writer from the UK, when not writing on a freelance basis or writing guest blog posts, she regularly writes on her own blog: http://www.fastpaydayloansreview.com