Two years ago, the FCA (Financial Conduct Authority) made sweeping changes to the short term loan industry. These changes understand the fluctuating nature of having to borrow money. They were created to help protect borrowers from unexpected circumstances and make short term lending safer and more reliable. That helps borrowers build a better financial future for themselves. Here are a few key aspects that many still don’t know about when seeking short term loans:
- If you’re unable to repay your short term loan when it’s due, it can be rolled over into the next month. Before, less reputable payday loan companies could prey on those unable to pay, allowing borrowers to accumulate endless amounts of rolled over debt and interest. The number of rollovers has been wisely limited to 2. This still gives borrowers some flexibility in prolonging repaying a loan, while also protecting them from extending it too far into the future and seeing it compound disproportionately. This reinforces short term loans as a borrowing solution that can help families and individuals bridge unexpected financial circumstances. Simultaneously, it removes a dangerous pitfall and keeps short term loans from becoming long term debts.
- Changes have been made to lenders’ ability to utilize CPA, or Continuous Payment Authority. Before, a lender could take payments in any amount on any date they chose. This helped lenders help borrowers avoid late payments or defaults. What should have allowed greater flexibility in working with time constraints and last-minute changes instead led to some lenders abusing this power. They triggered payments without warning or spammed bank accounts to withdraw small amounts regularly rather than what had been agreed to by lender and borrower.
The result of this is a new limitation in lenders’ ability to use CPA. It can only be failed twice before the lenders lose their ability to use CPA on that loan. Furthermore, withdrawals of partial payments are no longer allowed on the lenders’ side. That means a lender can’t spam your account with repeated withdrawal requests, simply looking to lift money as soon as you get it. If they do, they’ll lose their ability to use CPA on your loan. This returns CPA to one of its original intents – as a tool to be used in rare cases of emergency.
3 Risk warnings are now also included in all electronic communications from short term lending companies. The warning reads: “Warning: Late repayment can cause you serious money problems. For help, go to moneyadviceservice.org.uk.” This reminds borrowers that short term lending is a precise tool for precise circumstances. It is not safe to abuse and a short term loan should only be made when borrowers have and expect to have the capability of paying it off.
4 There is also a new price cap on short term loans. Interest and fees may not exceed 0.8-percent per day of the money borrowed. Default fees are capped at 15 pounds for borrowers struggling to repay. This means lenders can’t hit you with exorbitant non-payment fees. Furthermore, borrowers are protected from debt escalation. The total of fees and interest can no longer exceed the amount borrowed. This means, even in the worst of non-payment and default circumstances, you can’t owe more than 200-percent of what was borrowed.
These rules all make borrowing safer. Sites like cashfloat.co.uk are happy to see them because it stabilizes an industry that can help in specific circumstances. The rules also help to educate borrowers in many key ways that can help you build a better financial future.