Since beginning to regulate the market in 2014, the FCA has implemented a number of regulations and price caps to ensure that the market is suitable with costs that are fair and beneficial for both the consumer and the lenders. In this article, we will be looking into more about the FCA and how the implementation of their regulations has affected the payday loan industry between 2015 to 2019.
Who Are The FCA?
Established in April of 2013 the Financial Conduct Authority (FCA) was put in place to regulate 59,000 financial services firms and markets in the UK. Their main aim is to make markets work well for both individuals and businesses both large and small under the jurisdiction of the Financial Services and Markets Act of 2000.
This publicly-funded organisation has three main objectives when regulating financial markets which are as follows:
- Protect Customers
- Protect Financial Markets
- Promote Competition
By following these three key objectives, the FCA is able to keep each financial market fair and promote healthy competition between lenders to benefit the consumer.
What Did They Implement?
Upon some research into the high-cost short-term credit market (HCSTC), there was evidence to suggest that the market had begun to grow substantially. With an estimated total of 10 million per year before FCA regulations, were put into effect. The FCA began to regulate a number of firms from within this growing market in April of 2014 with the aim of tackling poor conduct in the market to benefit the consumer.
In January of 2015, they then introduced a cap on the total amount that lenders can charge the consumer. This was capped in order to safeguard that interest rates charged did not exceed 0.8% per day of the total amount borrowed.
In addition to this, regulations were put in place to guarantee that all fees after a borrower has defaulted on payment must not exceed £15. This was put into effect to confirm that all repayments are made on time when taking out short term loans or payday loans during a time of financial difficulty.
Finally, the implementation of a 100% cost cap for all interest fees and charges was put in place so that borrowers must never pay back more than 100% of what they initially borrowed. This was implemented to certify that the market is fair and payday loans lenders are regulated to benefit both lenders and borrowers in the long term.
The Effect These Regulations Have Had On The Industry
Since the implementation of the above caps and regulations, the industry has had a significant drop in the number of Payday Loan lenders, however, the number of people taking out payday and short-term loans is gradually beginning to rise. This is beneficial for lenders and the market as a whole as they will be able to provide a beneficial service to the borrower under FCA guidelines, thus helping to repair the reputation of the HCSTC marketplace.
Year to year figures from the financial conduct authority shows that in Q2 of 2018 there were an estimated 5.4 million loans being taken out which is almost half the amount taken out in 2013 before the implementation of these regulations. This is a decrease since 2013 and has seen a significant drop in the number of lenders operating in the market. Though this is not beneficial for the market, borrowers are benefiting from these caps, as repayment methods are considered fairer.
Since these initial changes by the FCA, a number of other large corporations such as Facebook and tech giant Google have placed mounting pressure on the industry as they banned the advertising of any kind on their platforms in 2016.
During this time, the FCA are continually monitoring the current market to guarantee that lending is fairer and consumers are not overpaying, as a result, helping to fulfil their initial aims making the market beneficial for all those involved.