11th January 2015
The capping of the payday and instalment loan industry came into effect on the 2nd January but what impact has this had on lenders trying to make the changes so they meet regulation set out by the FCA.
Well December was a manic month for The Lenders List implementing changes to lenders APR’s as they are no longer allowed to charge more than 0.8% per day. Many lenders turned off their sites for a few weeks so they can update websites and in the process improve the look of their sites so its clearer and bolder about what they charge customers and the type of product they offer. The whole point of the new regulation is so customers are protected by lower charges and prevent spiralling debt this may seem like a slap in the face for lenders as they have a business to run but the FCA are not trying to put companies out of business but to be fair and protect customers and prevent the negative impact to people financially and emotionally.
Many lenders have changed their short term loan products to instalment lending which means loans can be paid back over a longer period which eases the amount that needs to be repaid each month. With the instalment loans they can range from two months to up to a year depending on which lender you choose. Many payday lenders still offer the short term one month loan but many have taken the decision to abolish the short term loan altogether from their products and just focus on instalment lending. The decision to end the short term loans would have been a tough one but payday lenders are now taking measures on what is the best way forward to continue trading.
The capping has meant some lenders having to stop trading as they can’t see it being financially viable to continue as a business with the charges being cut in turn meaning less revenue. This is unfortunate as this has more than likely caused redundancies within these firms and this is some of the negative effect of the capping of the industry. The FCA will probably say closing firms or redundancies is not what they wanted but if they kept there house in order and looked at ways to lower the rate this could have all been prevented so some business models can be blamed for how strict the FCA are.
Overall we believe that the capping was a must, it had to be done to protect consumers from stop spiralling debt but we also believe that consumers need to make educated decisions about getting a loan whether they can afford to pay back and whether it may put them in further debt. With lenders now offering instalments loans this makes situations easier for individual who can manage their living costs as well as repay the loan over a longer period.
Only time will tell if the capping will have a good affect for both lenders and consumers there has to be balance and if it tips and consumers still struggle with the capping the FCA may review the capping again meaning lenders having to offer a lower rate and this could kill the industry.