The Financial Conduct Authority’s (FCA) new rules for the high cost short term credit sector are now in force.
The final rules include the following:
- Initial cost cap of 0.8% per day – lowers the cost for most borrowers. For all high-cost short-term credit loans, interest and fees must not exceed 0.8% per day of the amount borrowed.
- Fixed default fees capped at £15 – protects borrowers struggling to repay. If borrowers do not repay their loans on time, default charges must not exceed £15. Interest on unpaid balances and default charges must not exceed the initial rate.
- Total cost cap of 100% – protects borrowers from escalating debts. Borrowers must never have to pay back more in fees and interest than the amount borrowed.
Following the strict new rules, figures by the FCA revealed that around 70 firms did not apply for permission to continue to offer short term loans. In addition, 30 lenders have lost their consumer credit licences since the start of 2013, so around half of the UK’s 210 payday lenders have stopped offering the service and at least 450 high street stores have closed.
David Patrick, Cash Converters’ CEO, said: “We welcome all forms of regulation of the industry and consider ourselves to be a responsible lender, driving high standards within the sector. For the past few years we have been working hard to ensure we meet all industry standards in every way possible, which has made the introduction of the new Rules by the FCA, a much smoother transition.
“Since the legislation changes were announced, some of the sectors biggest lenders have closed their doors. Now they have come into effect, what we should be left with is a new model of lender; one that is compliant, flexible to meet customer demands responsibly and, as in our case, offers a variety of credit options, not just short term loans.”