MSE News: 'About bloody time' - payday lending crackdown

nottoolate

fca already have the legal power to cap charges in the form of fixed charges and interest under FSA2012 s137.

smartpicture

What about the affordability requirement? Surely the point of Payday loans is that 90% of people can't afford them, the only people who use them are desperate and out of other options. So this rule will immediately stop 90% of the business won't it?

ILW

smartpicture wrote: »

What about the affordability requirement? Surely the point of Payday loans is that 90% of people can't afford them, the only people who use them are desperate and out of other options. So this rule will immediately stop 90% of the business won't it?

And send it to the unregulated sector.
Great!!

Nada666

smartpicture wrote: »

What about the affordability requirement? Surely the point of Payday loans is that 90% of people can't afford them, the only people who use them are desperate and out of other options. So this rule will immediately stop 90% of the business won't it?

99% of borrowers can afford the loan. They can't afford additional loans or concurrent loans.

jamesd

Here is the FCA's announcement of its proposals for FCA regulation of consumer credit. Payday lending is only a small part of what they cover. The high cost, short-term lending part is covered from page 52 of their proposal.

These rules will apply to loans with an APR of 100% or more and a term of up to 12 months. Not just payday loans.

Partial payments are NOT being banned (6.4, page 66). Rather, the use of continuous payment authorities for them is being banned. Banning partial payments would have considerable consumer detriment, since it would ban consumers from partial early settlement, an important interest-saving feature.

southerndave

Sorry Martin, much as I like what you have to say generally, you're wrong on this one. What the world needs, let alone this country, is LESS regulation and State interference in people's business. Let me qualify that:

If Joe Bloggs wants to borrow money at extortionate rates of interest, that is Joe Bloggs choice. Joe Bloggs being over 18 and an adult of sound mind should be absolutely free to make such decisions about their own affairs as they see fit. Acme Loans Co should also be free to service such demand by lending their money at whatever the hell rate they choose. Provided there has been no coercion from either side and each is free to enter into an agreement, it has nothing to do with you, me, the State or the man in the moon, it is simply not our business.

The flip side is that both the Loans Co and Joe Bloggs must accept all the possible outcomes and responsibilities such a transaction be-gets.

And that much maligned word is the crux: RESPONSIBILITY.

If people CHOOSE to borrow money that they cannot/will not repay, the consequences are their OWN responsibility, no-one else's.

It is not a matter of regulation, caps, punishments, coercion or anything else that requires State intervention. All the while the State interferes, molly-coddles and treats adults like infants, they will behave like infants and we will continue to live in an infantile society that will require ever more regulation, rules and 'parenting' from an ever enlarging and evasive government.

dealer_wins

southerndave wrote: »

Sorry Martin, much as I like what you have to say generally, you're wrong on this one. What the world needs, let alone this country, is LESS regulation and State interference in people's business. Let me qualify that:

If Joe Bloggs wants to borrow money at extortionate rates of interest, that is Joe Bloggs choice. Joe Bloggs being over 18 and an adult of sound mind should be absolutely free to make such decisions about their own affairs as they see fit. Acme Loans Co should also be free to service such demand by lending their money at whatever the hell rate they choose. Provided there has been no coercion from either side and each is free to enter into an agreement, it has nothing to do with you, me, the State or the man in the moon, it is simply not our business.

The flip side is that both the Loans Co and Joe Bloggs must accept all the possible outcomes and responsibilities such a transaction be-gets.

And that much maligned word is the crux: RESPONSIBILITY.

If people CHOOSE to borrow money that they cannot/will not repay, the consequences are their OWN responsibility, no-one else's.

It is not a matter of regulation, caps, punishments, coercion or anything else that requires State intervention. All the while the State interferes, molly-coddles and treats adults like infants, they will behave like infants and we will continue to live in an infantile society that will require ever more regulation, rules and 'parenting' from an ever enlarging and evasive government.

Way too sensible for 2013, where everyone wants everything now, and its all someone else's fault when it goes wrong!!

emweaver

All Martins alternatives are all very well if you have family to ask or your credit rating allows a credit card. I for one cant get a credit card, do not have one and can not get an overdraft. Grants from the job centre take ages to get, next pay day will come quicker and they are only for people on certain benefits.

fordfocus-chav-car

I once needed cash into my bank account ( direct debits coming out next day).
I used Wonga for a loan, just for 24 hours. It saved me a fortune in bank charges & I even got cash back from quidco.

Looks like instant cash is a thing of the past now. I think this is a bad idea.

jamesd

Now I have a bit more time, here are some additional corrections to errors in the MSE story.

Note here that these rules apply to loans for up to a year with 100%+ APRs, not just pay on next pay day loans.

False: "The number of loan repayments lenders can attempt to take from customer's accounts by continuous payment authority (CPA) is to be capped at two per loan. "
The truth: A lender is free to take 52 repayments for a one year loan with weekly repayments if that is the agreement. Or one a month for three months, or one a week for 28 days. There is no cap on successful CPA payments. But there is a cap of two unsuccessful attempts (6.39 page 66).

False: "Lenders must also only try to take full repayments."
The truth: Consumers do not lose their legal right to make partial payments at any time if they want to. But lenders are prohibited from taking less than the full amount due and payable using a CPA (6.41, 6.43 [7.6.12(3)] ). Some other method must be used instead. Note that it has to be the amount due and payable, so if you make an early partial payment, the CPA can still be used to collect the remaining part of a monthly or weekly payment on its due date, so you won't risk a late or missed payment just because you paid some of it early.

True: "Limiting the number of times a loan can be rolled over to two"

The rules:

6.7.23 (R) A firm must not refinance high-cost short-term credit (other than by exercising forbearance) on more than two occasions.

6.7.12 (R) (1) 'refinance' means to ... extend the period over which one or more repayment is to be made by a customer; or change the date on which one or more repayment to be made by a customer is due (or expected) to a later date

Unfortunately, this opens the way to consumer detriment because the proposed rule bans refinancing - including partial repayment and borrowing the remainder - to just twice, unless the lender does it using forbearance, which involves the usual negative credit reporting consequences for such arrangements and will make it harder for the consumer to obtain credit on better terms. A lender can't even adjust the payment date due to an employer paying their employee a day late or a consumer giving the wrong repayment date more than twice. That's a punitive regime for consumers.

Rules allowing delays of up to a week and allowing as many refinancings as the consumer desires but only for up to say 75% of the amount due (due, not borrowed) would protect consumers from continual rollovers without the unnecessary added problems.