The payday loans industry in the UK is still largely unregulated, despite the fact that Europe and the US regulate theirs. The popularity of this industry has increased every year to the extent that it is now worth £1.7 billion, however as its popularity has increased, so has the number of complaints regarding its practises. Therefore it is no wonder that several organisations including the government’s own Office of Fair Trading have decided to investigate how this industry is run and the common complaints which turn up time after time.
The most common criticisms of the payday loan industry are the fact that currently, there is no cap at all on the amount of money that a consumer can be charged for a payday loan. This is because the customer can be charged an infinite amount of interest and ‘rollover’ the loan an infinite amount of times. Therefore a customer could access a loan for £1000 at an interest rate of 4000% and rollover the loan 10 times and no one would intervene. This obviously has huge consequences for the borrower and they will find themselves in a position of insurmountable debt, with no way of repaying.
This situation has also encouraged a trend for payday loan borrowers to borrow one payday loan to repay another from a different company. This has led to a situation where a typical payday loan customer owes four different payday loans on average.
Despite the fact that the governments Office of Fair Trading have been assessing the payday loan industry, recommendations by the OFT have been rejected. Instead, a body which represents 90% of payday lenders have agreed with the government that going forward payday lenders will freeze interest and charges for customers in financial problems. They must also advise customers three days before taking money from their accounts that to repay debts.
These new measures will be implemented from the 25th July 2012.
The movement by the payday loan industry is certainly a step in the right direction towards becoming a completely regulated industry. The introduction of a freeze in interest and charges for customers that are struggling to repay debts will be welcomed by all those involved. The aim is to try and protect vulnerable customers and prevent them from getting into a spiral of debt and escaping clutches of debt which will mar their finances and indeed life, forever.
Guest Post: Laura Susstance is an experienced financial writer from London, UK when not writing on a freelance basis or writing guest blog posts, she regularly writes on her own blog: Fast Payday Loans Review