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Untruths about Payday Loans

OFT out - FCA in

You cannot seem to go for too long without hearing, or reading, a news story about payday loans in the UK media.
 
A snap shot of the industry could have you believe that it was an absolute free for all with wide scale bad practices and a completely unregulated market. You, of course, could be accepted for a loan whoever you applied to whatever your current circumstances - it was really that easy wasn't it?
 
In April 2014 the Office of Fair Trading stood down from regulating this sector and the Financial Conduct Authority (FCA) stepped in. A change of regulator can often be seen as refreshing and their aim is to clean up the sector for the benefit of the customer

What you don't hear about Payday Loans

Firstly, lets not be under any illusion that there weren't bad practices out there. There were, some would argue there still are, and these do of course need to be addressed or the culprits of these bad practices need to be closed down and out of this market.
 
Secondly, the market was not unregulated. This is a common theory that is simply not true. A lender would need to register with the Office of Fair Trading to be able to lend - this wasn's a simple "sign here and you're done" process either - this would take a long time to get in place and business plans and the way the lender would work would all need to be documented. The Office of Fair Trading had strong rules about becoming a lender and this is often missed when discussing the industry. It can be safely assumed that the FCA will make becoming a lender equally, if not more so, as rigorous. There is a danger of over regulating. Yes, everything needs to be within regulation and customers need to treated fairly. However, over regulation can create problems. If good lenders out there feel they are being strangled too much by it then they could leave the market place. A lack of lenders creates a lack of competion - which isn't always good. The last route anyone wants to go down is that of more people using unlicenced, illegal, loan sharks.
 
Lastly, everyone was accepted for a loan weren't they? This is simply not true - there has never been a guaranteed acceptance and there never will be. Why would a lender offer everyone a payday loan and therefore increase there chances of people not paying the loan back? A lender needs customers to pay back to make money - this is the very basics of it. If you had 10 people borrow money from you, at a level of interest, you would need a good number of them to pay you back so you could actually make any profit at all.
 
The payday loan industry was far from perfect. The OFT, and now the FCA, have put in place measures to make it better. This can only be a good thing. Care just needs to be taken in not bullying out the good lenders out there.

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What do YOU think about these changes? Have your say on our Payday Loan Discussion Page.

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