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Payday Loan Guidelines 2018/2019 – Updated
Most people believe that payday loans cause trouble because of the increasing number of cases where individuals end up buried in debt and owing double the amount they borrowed. It has even come to a point where the masses are calling for a ban on this kind of credit service. With this, you must know the Payday Loan Guidelines in 2018.
And yet, it remains legal in the UK. Believe it or not, payday loans are lawful. Even so, the government recognises the dangers and risk it presents which is why it has been allowed by law on the condition that those who tread this industry should follow strict rules and regulations.
2019 Payday Loan Guidelines Explained
In a literal sense, payday loans in 2019 involves a relatively small amount of money borrowed from an institution that is not a bank. This kind of loan usually has higher interest rates and is ideally set to be paid during the next payday. Also considered as a short-term loan, lenders offer payday loans that can be paid between 6 and 12 months, depending on the agency’s policies. Because of this, this kind of loan requires no collateral or guarantor.
According to experts, payday loans are expensive if only because of their immediate and easy approval. In fact, costs computed on top of the loan capital based on regulations set by the Financial Conduct Authority (FCA) has 0.8 percent per day. It means a £300 would earn the lenders £2.40 for every day that the borrower has the money. You will find this indicated in 2019 guidelines.
Based on national statistics in 2014, most of the UK citizens applying for payday loans are those with income between £18,000 and £36,000. It is because people within this income bracket often find themselves troubled with proper budgeting and fail to gather an emergency fund for rainy days. Since other kinds of loans are for a larger amount with longer repayment schemes, these middle-class residents tend to take up payday loans to finance quick fixes around the house and emergency health issues.
The Legality of Payday Loans in 2018/2019
Despite a strong call for the industry to be banned, payday loans remain a legal business in the United Kingdom because legislators cannot simply shrug off the fact that it has its advantages. Because of this, lawmakers have appointed the FCA to take over the regulation of the industry in 2014 from the Office of Fair Trading (OFT) for better management.
Based on Payday Loan Guidelines in 2018 about the matter, the FCA immediately jumped into action after getting the job and promised two things up front:
- Regulation of the industry will be made to ensure that agencies will only lend money to those who can afford to pay it back.
- An increase in awareness among borrowers about the risks and costs payday loans entail as well as all other options they have when dealing with financial difficulties.
To achieve these goals, the FCA immediately implemented guidelines to let lenders know of the changes in the industry.
A Guide For Lenders on FCA Policies
New lending agencies, as well as lenders, might need to do some thorough research when it comes to UK payday loans after the FCA went on their quest to make the industry a lot less troublesome for borrowers. Among the key changes are:
The Number of Times Loans Can Be Rolled Over
Rolling over a loan has become a trend in the UK payday loan industry because it allows borrowers more time to gather money for repayment. However, it is one of the risk factors that contribute to many citizens in the country drowning in debt.
Because of this, the FCA decided to regulate the number of times loans can be rolled over. Now, payday loans can only be rolled over twice before the set due date arrives to protect citizens from going down a spiral of debt due to the excessive amount of fees added to the loan, which has layers and layers of interest charges due to the never-ending rolling over.
How Often Lenders Can Attempt Debt Collection
Many lending agencies use a CPA, or Continuous Payment Authority, to gather payments from their clients. While this provides borrowers with the convenience of not having to visit the lender whenever their repayment is due, it also poses a massive risk for them since it allows lenders to take any amount of payment anytime they like.
Believe it or not, some loan companies fail to let their clients know before they take payments from the bank, causing a heap of trouble for the borrower. Often, this leads to unpaid utility bills and, worse, bank charges and credit issues.
Thankfully, the FCA decided to include regulation on this matter, effectively limiting the number of debt collection attempt lenders can do when they fail to do so due to lack of funding on the CPA assigned account. After two failed attempts, lenders are obligated to converse with the borrower to know why they cannot get the payment they are owed. The limit is then reset after the loan is refinanced or rolled over, depending on the borrower’s course of action.
Amendments to the Use of Continuous Payment Authority (CPA)
The amount that can be collected by lenders via CPA has limitations to how much the borrower owes them. It means lenders cannot charge your bank account for a different amount if it doesn’t have enough money to pay them in full, thereby resulting in one failed attempt.
Through this, the FCA protects borrowers from getting their banks swiped clean by lenders who empty them even though the account doesn’t have enough money in it. If the borrower still intends to pay using the bank that has insufficient funds, he or she should give one-time written consent to the bank to allow lenders to take a different amount.
Mandatory Inclusion of Risk Warning to All Emails about Payday Loan Guidelines in 2018/2019
Because of the growing publicity around payday loans guidelines 2018, the FCA also decided to impose a mandatory inclusion of warnings about the risk of failing to pay this type of debt. According to the authority, this warning should be included in all emails and non-electronic media so that borrowers are aware of the repercussions of failing to pay on time.
Mandatory Debt Advice Provided for Borrowers
On top of the risk warning, lenders are also mandated to refer the borrower to a free debt advice service that is approved by the FCA. Service providers included in the regulatory body’s list are all free of charge and known to provide sound advice before borrowers decide on refinancing their loans or rolling it over.
Payday Loan Alternatives
Many people turn to wage day loans because it allows them to borrow only a small amount and for a shorter period. However, it has become an expensive choice, so much so that even experts in the industry do not recommend them for certain situations.
In fact, people who are short on cash for groceries or those who have a sudden need to shop for DIY fixes around the house are strongly advised to use their existing credit card instead. It is because credit cards have significantly lower interest rates and would even allow consumers to pay the exact amount they needed without any additional fees if they do it on or before the credit card bill is due.
Of course, having an emergency fund ready for the tough times is also a great way to avoid needing payday loans. Save part of your bonuses and all other extras so that you would have something to use when the need arises. After all, a wise individual always prepares for the rainy days.
When To Take Out a Payday Loan in 2019
Certain situations require payday loans, whether you like it or not. While it certainly is problematic for some people, a responsible payor need not worry about drowning in debt and should focus on what is at present.
Below are some of the most common situations that may require you to apply for payday loans guidelines 2018:
- Home emergencies like water leaks or damages caused by the weather and other natural calamities
- Poor credit reputation or blacklisted
- Transportation difficulties, including a broken-down car
- Unexpected family trips during emergencies that require your presence (e.g. when a loved one is sick or was a victim of an accident)
- Issues at work that require you to shell out your own money
Even if your situation isn’t included above, it is important to weigh all your options. While it may sound different from what you’re told, payday loans are always part of these options.
What you need to think about is not what other people say, but what you intend to do. Even if others tell you that payday loan guidelines in 2018 are bad for your financial stability, it is important to remember that being a responsible individual who assesses his capacity to pay well and sticks to what the loan can effectively keep you from financial trouble in the future.