The financial market felt a significant shake down as the Financial Conduct Authority introduced new payday loan directions for standardizing high cost short term credit. The regulations implemented were aimed for controlling unlawful loan hunters from ripping off or misusing the current circumstances of the customers, and ensuring that their benefits remain secure, however the effect of these regulations is yet to be seen.
The Influential Regulations introduced in the latest papers released by FCA :-
- The total initial cost applicable including interests and other charges only will be 0.8 of the amount of loan taken.
- The interest on unpaid amount is decided to be nothing less or more than £15. This initial rate will always be higher than this default amount.
- The new regulation also ensured that in any possible situation the consumer will never pay back the loan amount which is more than double of the amount borrowed.
Under the influence of FCA regulations the already unregulated business sector became united, moreover the consumer funding techniques incorporated both loan based and investment based consumer subsidizing. With effect of these upgraded regulations all the loan lending companies started feeling their responsibility on the facts with which they used to entertain the customers who came to them is search of financial slots and for the services they promised to sell. A legitimate permit was released for many of the organizations which were subjected to word under the Financial Conduct Authority. Commission based offices got to be banned under FCA regulations and furthermore in the lights of caps proposed by FCA, many big loan and finance companies marked edge of benefit got to be low. Only the big name financial companies and loan agencies who have shown the effect of their presence and were distant for low wage families generally, survived the trial.
FCA always wanted to have one solitary reputed big money lender and three other agencies supporting it and looked to filter all those finance and other payday lenders from loan market who were not sure of changing their business strategy and model. The regulation stated that a consumer would never pay more than £200 for a loan of £100
The Actual Motives behind the Acts
As per the speculations of FCA total of 7% of borrowers in UK never had any actual reason to borrow money. The FCA regulations proved to be the blessing for more than 70,000 consumers who used to seek financial support from payday lenders. The effect of the new rules was seen when 35 % of borrowers were cut short from the plates of payday lenders.
The Loop Holes in New Rules
FCA didn’t look that active in controlling the high rising ramifications of ARPs while they it did put a cap on payday lenders but ARP has no one to check after it and assist it. The situation is that if someone buys a loan of 100 bucks, then he would have to pay a high interest of 20 bucks in every couple of days. Know this may didn’t look that much of a problem for high class, but is certainly as alarming situation for middle and low class families who have to choose whether to eat dinner or to pay their bills.
The new regulation marked a dead end for many payday lenders and not more than four organizations were able to survive the cap applied by FCA. The agencies who managed to turn to face the situation easily have already changed their loan lending limits and or were already dealing in a less than market rate. Now the catch is that with so many companies closing their shutters which marks most of the customers will drive their money acquiring needs from the only survived high end agency, which will give them a 100% monopoly over the financial market. Zero competition and lack of options will drive consumers in a straight line to the already crowded agencies which will also mark the downgrading standards and lack of service support to the customers.
The rules which were enforced to help the low income families in the long run will only make things worse for them. The 70,000 applications which were found inappropriate for short term loan under new FCA regulations will have to look for other sources. And as per trusted sources 2% of these consumers that is 1400 people move to the loan sharks who is return greet them with high interests, and these payday lending’s are impossible to track so most of these loans will never get noticed, which is also a big loss for FCA. Moreover with new regulations there will be chances that people may not get the full amount as expected by them, and for the left money they will turn to illegal loan sources. FCA needs to understand that the high priority rules which were introduced could only benefit the primary consumers if they can motivate consumers against illegal and unregistered loan agencies.