Store cards loss is payday lenders gain

Carrying on from the previous article, Short term loan and store card regulations tightened by FLA,

Do the FLA not keep up with technology? Here’s the scenario:

  • You’re in a store, but cannot now take out a store card on the spot to purchase the item you like.
  • What you do have is an app phone. With the Internet. Where short term loans companies live.
  • See where we’re going, yet? Maybe the FLA can’t, or don’t want to.
  • In shop. Take out instant cash loan.
  • Buy goods.

As the purchase is now with cash that can be in your account extremely quickly, the bargain is even more incentivised because you now qualify for a discount, denied under the new rules with new store card applications.

  • Pay back loan when paid.
  • Job done.
  • Two fingers up to the FLA and store card lenders, now totally cut out of the loop, pushing more business into the coffers of the quick cash advance lenders online.

However, because of the fact that the item may not be worth as much as the minimum loan amount you have to take out with a instant cash loan lender,

  • there may be a surplus of cash left in the customer’s account.
  • Do we think that will stay put until the loan has to be repaid, or
  • will it go on a bag and shoes to match the initial outfit, which may not have been possible if the store card had a lower credit limit for intial transactions?

Will borrowers be put off by the stigma of going to a instant cash loan company?

They said that consumers would be put off online dating, because of how it was perceived; ironically, like pay day loans, another once frowned upon industry, now similarly worth £2bn a year, doing very nicely off the back of members of the public who seem to stop at nothing to get what they genuinely want.  Starting to sound familiar?

There are measures in place within the new FLA Lending Code affecting short-term lenders, too.

The total repayment cost of any loan must now be made clear to the potential borrower before they make their quick cash advance loan application.  Also, the suitability of the advance must be advised by the lender that it is recommended for a short term loan period and not intended or suitable as a long term debt solution.

There will now also be a limit imposed upon the number of times an extension can be applied to the original loan repayment date. Customers will now only have a maximum of three roll over periods to repay the loan in full. This will cap the amount of times the interest can be added, but where does the payday lender go if the repayment is not made on the third attempt? Take the money from the lenders account anyway and leave them to sort the mess out with their bank? Yep, that sounds like the best solution all around, as unauthorised overdrafts can be more expensive than the amount repayable on short term loans.

The new code also states that a new credit check is to be carried out every time an extension is applied for. What happens if it is a instant cash loan that does not insist on credit checks or the customer’s credit was good when the loan was applied for, but has faltered since? Again, refuse the extension and take what they’re owed anyway?

The new code also now extends provision for those who experience financial difficulty. It seems the FLA are creating their own new market, there, rather than concentrate on individuals who are in existing deep water without having these further limitations imposed. If these measures are supposed to encourage ‘responsible lending’, I’d hate to see any guidelines for letting the state of the market get further out of hand.

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