The Financial Conduct Authority (FCA) who is responsible for regulating the high-cost short term lending industry has granted authorisation to the most compliant lenders in the UK. The regulator is accountable for the payday loan, peer to peer and guarantor loan industry, amongst others.
The FCA took over from the Office of Fair Trading (OFT) and started regulating the high cost lending market in April 2014. Initially, all lenders and brokers were required to apply for temporary or ‘interim permission,’ with the opportunity to apply for ‘full permission’ if they wanted to continue trading long-term. An application for full permission would involve a full analysis and insight into the running of the business including customer service, underwriting, collections and marketing.
Two years later, the FCA has permitted full authorisation to those lenders that have met a series of minimum requirements and those running the business that are deemed proper and have demonstrated an understanding of the rules provided by the FCA.
The rules introduced by the FCA
Customers are limited to two rollovers per loan and a one-off default fee that cannot exceed £15. All companies providing or comparing short term credit must provide a link to the MoneyAdviceService.org.uk on their website or any other marketing material.
The impact on the payday loan industry
The strict regulation imposed by the FCA since April 2014 has effectively kept the most compliant lenders in the game, whilst removing the least compliant.
Various payday lenders and brokers have been subjected to large fines; reimbursements to customers and several firms have exited the industry for not fulfilling the basic requirements. Some of the larger lenders reported huge losses for the first time after paying the fines and having to tighten up their lending criteria.
Noticeably, there has been a decreased presence of payday loan brokers that previously charged upfront fees for basic applications and profited from selling customer data to third party companies.
The Citizen’s Advice Bureau was pleased to announce a 45% decrease in payday loan complaints from the year before – suggesting that tighter regulation has been effective.
Adam Freeman, CEO of Mr Lender said upon receiving full authorisation: “This is the beginning of an exciting new chapter for us. We offer one of the most competitive payday loan products in our sector and we aim to keep raising the bar so that our customers benefit from the most responsible, affordable and transparent service.”
Daniel Tannenbaum, founder of GuarantorLoanComparison.co.uk explained: “The only guarantor lenders featured on our site are fully licensed and authorised which is great for the consumer – they know they will be applying with a trusted lender and this will lead to more consumer confidence for short term lending in the UK.”
To see which companies have been granted authorisation, you can check the FCA register here.