FCA to Introduce new Regulations for Payday Loan Brokers

The Financial Conduct Authority (FCA) is to introduce new regulations to crack down on questionable practises by loan brokers resulting in many of the poorest members of society being stung by hidden fees and excessive charges while applying for payday loans.

ìThe rules,î according to the FCAís website, ìwill ban credit brokers from charging fees to customers, and from requesting customerí payment details for that purpose unless they meet FCA requirements.î

Background

The new regulations come after a relentlessly increasing number of complaints from consumers, as well as worrying reports from banks such as NatWest. These reports confirm suspicions that some payday loan brokers are acquiring customerís bank account details and passing them on to up to 200 other companies as well as charging ìloan matchingî fees of up to £75, often without even finding the customer a loan.

A customer uses a credit broker as a loan-finding service; they are promised cheap, quick payday loans, and are asked for their bank account details in order for an appropriate loan to be found. Banks are being inundated with complaints from customers who are being charged fees by not only the broker they dealt with, but also by various apparently unconnected loan companies who have been sent the customersí details by the initial broker.

Action

After receiving up to 640 complaints a day, RBS NatWest have taken action and announced that they have stopped any payments arrangements with 20 different loan brokers, though it is a constant battle, with many websites trying to resurface under slightly different guises and domains.

Now that the FCA has stepped in though, there is tangible hope for consumers.  Seven different brokers have already had their business halted while they are being investigated by the regulatory authority, and more still may either face fines or have their licenses revoked entirely.

The regulations, which come into effect in February 2015, concern general transparency, forcing fee-charging credit brokers to ìnotify the FCA, quarterly, of the websites they operateî, and to generally make all information regarding fees and interest charges clearly available to consumers.

In an as yet unprecedented move, the FCA has pushed the regulations forward without going through its usual prior consultation, a decision borne of the urgency and severity of the issue.

A step in the right direction?

This comes just weeks after the same authority announced caps on fees that payday lenders themselves can charge. These caps limit daily interest charges to 0.8% of the initial loan sum (as well as limiting the total interest charge to 100%), and limit any default charges to a maximum of £15. These caps will come into effect this coming January, a month before the restrictions on the actions of brokers.

This marks a step towards a general overhaul of the regulations governing the payday loan industry which has troubled many of the poorer members of society for a long time. Indeed it is only since this October that the FCA has actually started to properly assess brokersí applications for authorisation. Previously this responsibility was held by the Office of Fair Trading who granted ëinterim authorisationí to over 5,000 brokers.

With the new regulations and caps in place, the FCA is looking to tidy up the practise of payday lending, protecting some of the most vulnerable members of society from having their last pennies prized away from them by unscrupulous brokers while retaining the ability for these people to borrow money when they need it most.

While certain aspects of what the FCA plan to impose (in particular the caps on interest rates the lenders can charge) have been subject to criticism; the general thrust of what they are doing is certainly positive, and looks like a genuine victory for those in dire need of one.

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