Payday loan providers may face tighter regulation soon, thanks to the new Financial Services Bill presented to Parliament recently, instant cash loans experts recently reported.
Payday lenders, which provide short term loans to those in need of emergency cash have become increasingly popular in the current economic landscape. Despite the relatively inexpensive nature of using an instant cash loan instead of an unauthorised overdraft – as payday lenders typically charge anywhere from £10-£30 per £100 borrowed – some consumer groups have been lobbying the government to regulate lenders more closely after taking issue with the high fees associated with missing the repayment deadline on an instant cash loan, and Shelter, the housing charity, recently revealed that its research indicates that one out of every seven households in the UK have resorted to either an unauthorised overdraft or an instant cash loan to pay their mortgage or their rent in the last 12 months.
The instant cash loan industry may soon be subject to new scrutiny under the Financial Conduct Authority, a new watchdog set to begin operations in 2013. The FCA will be given the authority to fine lenders who violate new regulatory practices such as detailed explanations as to how their customers will be treated, and they will also be required to present a business plan and be subject to more stringent checks before they can begin trading.
The FCA, which will be replacing the Financial Services Authority as the watchdog with oversight of the industry, will be better equipped to investigate lenders that may be engaging in behaviour that flouts regulations. Additionally, the FCA will also have the ability to issue bans on specific products from specific lenders that are not in the best interests of consumers.