A ‘payday’ loan is a short-term loan, and this is a highly used loan type. The interest rate on these loans varies widely, but, with the high risk of lending these amounts to people who probably would have difficulty in getting traditional loans from financial institutions such as banks, the high interest rates charged are defended as justifiable.
An investigation was done by the Competition and Markets Authority (CMA), and their findings were published in 2015, with resultant amendments to the regulation of the ‘payday’ loans facilities offered by a large number of lenders across the UK.
A payday loan is defined as a loan of £1000 or less, that has an annual percentage rate (APR) of more than 100%, and is payable over a period of up to, but not longer than, 12 months.
Here are the highlights of that report, and commentary on how this will impact on you, the potential customer of these lending institutions:
- A key finding was that lending in the ‘payday’ loans market was driven by the speed with which money could be borrowed, rather than the cost of the loan, which affected the competitive nature and the risks to both the lender and the borrower;
- Most customers find the ‘payday’ loans companies their borrow money from through lead generator websites, and this usually favours the lead generator, rather than the customer, because they will direct potential loan customers to highest bidder to the lead generator company, which does not really afford the customer the opportunity to compare loans with other lenders or choose a loan that best suits their needs;
- New lenders are restricted in their access to potential customers by the cost of advertising to compete with established lenders.
The Order that was issued and has been phasing in over a period of time, is now fully in force as of August 2016, hence the need to raise the awareness of the customers of all ‘payday’ loans companies, as these new regulations are largely for the benefit of the customers.
The package of remedies put forward in this order are, most notably:
- An online provider of payday loans has to publish details of their products on at least one Price Comparison Website (PCW), to educate the potential customer regarding the best possible products available in the market that will best suit his / her needs;
- The information that should be made available to the potential customer is the amount of interest, fees and charges levied on loans, the minimum and maximum value of the loan, the repayment structure, the fees and structures that apply if a loan is not paid on time or at all, or even if it’s paid early.
Also, if you go to the website of any payday lender now, there should be a hyperlink to a FCA-approved PCW.
All these provisions have been implemented to protect you, the consumer, and your best interests, so keep these provisions in mind the next time you go surfing the ‘net for an online payday loan.