What you need to know about the new Code of ConductThe Consumer Finance Association’s new Code of Conduct is now in effect – but what does this mean for the everyday short term loan customer?

The CFA – a collection of payday loan trade associations that cover roughly 90 per cent of the payday lenders in the country, including QuickQuid, one of the country’s largest such lenders – has responded to the nearly limitless tidal wave of criticism leveled at the industry that too many lenders have been preying upon low income earners or those already in dire financial straits by developing and implementing a voluntary Code of Conduct. The new Code has several requirements in how lenders need to now treat customers and prospective borrowers, though many critics say that some of the largest lenders in the UK such as Wonga aren’t bound by the new requirements.

More transparency is never bad

One of the chief complaints that the payday lending industry has faced is that the interest rates and the consequences for not repaying a payday loan on time are not explained sufficiently to borrowers, who then fall afoul of these lending terms when it comes time to repay the loan in full but cannot afford to do so. However, now any and all CFA lenders must now ensure that prospective borrowers understand the consequences of taking out payday lending, including the real cost of repaying a loan and what kinds of late fees and compounded interest rates they are in for in the event of a rolled over payday loan.

More importantly, there are now limitations on how much these lenders can charge when it comes to compounded interest or late fees. In fact, now any borrower who is more than 60 days late on their loan will no longer accrue any additional interest or late fees and instead will have an opportunity to enter into a repayment plan with their lender in order to clear their debt slowly over time and without as much financial hardship.

A good start but far from perfect

Payday lenders that are members of CFA have said that they are willing to submit themselves to regulation in order to ensure customers are treated fairly and with dignity, and to prove that they care about their borrowers’ financial health. However, critics say that these new regulations, which are completely voluntary, lack any sort of weight; instead these critics say a better solution would be for the government to institute legislation that regulates all payday lenders and not just CFA members.

The fact that not every payday lender is a member of the CFA is another sticking point for many consumer advocates, especially since the most controversial payday lender in the UK – Wonga – is not a member and is not ‘bound’ by this new Code of Conduct in any way, shape, or form, leaving them free to continue to charge as much as 4,214 per cent in annualised interest until the government steps in.

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