Half of the UK’s payday lenders may choose to lock up shoppe rather than go along with tougher restrictions imposed by the industry’s new regulatory watchdog, the Consumer Finance Association recently revealed.
After the Office of Fair Trading passed the torch of consumer credit regulatory responsibility to the Financial Conduct Authority on April 1, 2018, the regulatory body has assumed regulatory control over 50,000 consumer credit companies across the UK, including payday lenders from High Street to the World Wide Web.
Having already outlined new regulatory restrictions for payday lenders, which are set to begin being enforced in July, the FCA will now limit the number of times a loan can be refinanced or rolled over as well as limit the number of times payday lenders can unsuccessfully attempt to collect payments from consumer bank accounts via continuous payment authority.
The FCA has also said it will closely look at the treatment of borrowers who are unable to make their debt payments, and the government has asked it to create a total cost of credit cap. The FCA announced it will regularly visit the UK’s five biggest lenders to ensure they are abiding by the new rules.
In a previous statement, the regulator predicted that nearly a quarter of payday lending firms may leave the market when the new rules come into effect. Meanwhile, the Consumer Finance Association, which is a trade body that represents 12 of the UK’s largest payday lenders, stated that the new rules may encourage as many as half of all payday lending firms to exit the market.
“No other credit market has faced such intense scrutiny in the past year,” said Russell Hamblin-Boone, chief executive of the CFA.
“If the new FCA rules are applied fairly and the regulator targets the worst practices not just the best known lenders, many more businesses could be driven out of the market,” he continued.
In speaking to the BBC, Martin Wheatley, head of the FCA, stated, “Parts of this industry – not all – are offering loans without doing any affordability checks and loading costs on to people who simply can’t afford to pay – and that’s the part of the industry we want to take out. We’d like firms to rise to our standards but if they can’t we’d like them to leave the industry.”
Several charities have expressed concerns about the potential outcome of having less payday lenders, fearing that it will drive needy consumers to loan sharks and other less scrupulous lenders.
In response to fears of rogue behaviour, the FCA said it will review the market and make any necessary adjustments.