Are you one of 7% who cannot access a short term loan?

Are you one of the 7% who may no longer be able to access a short term loan? If you are, what is your best way forward? Just because you can no longer get a loan doesn’t mean that the need goes away – far from it. What it does mean however is that you may need to try and make some adjustment to your financial status in an effort to improve your rating; even if only by a small degree, and then talk to one of the more responsible lenders, to see if you can qualify for one of their short term loans.

According to information on the Financial Conduct Authority (FCA) website, the new caps they introduced earlier this year have resulted in 7% (approximately 70,000 people) no longer being able to access short term loans. This figure is down on the original 11% they estimated when they floated their proposals in July last year. This group of consumers is an unfortunate by-product of the new rules and regulations that have been brought in to help the majority of borrowers, at the same time as regulating lenders.

Summary of the new caps

The caps that the FCA introduced in January 2015 can be summarized as follows:

  • An initial cost cap of 0.8% per day has been introduced on interest repayments. This should lower the cost of short term loans for the vast majority of borrowers.
  • The total repayment amount of any short term loan cannot exceed 100%. This has been brought in to help to stop a number of borrowers getting into increasing debt.
  • A maximum default fine of £15. This is aimed at helping those people who are struggling to keep up with their repayment.

Repeat borrowing under the microscope

Repeat borrowing is a known feature of the short term loan industry. The FCA will be carrying out some studies in the near future in order to properly assess the feature of repeat borrowing with particular regard as to whether or not lending companies are carrying out adequate checks to assess its ongoing affordability to clients.

These new rules and regulations apply to all HCSTC (High Cost Short Term Loan) agreements. There is also a new ruling about debt reinforcement on all HCSTCs. The new ruling says that any UK based debt collection agencies must refrain from chasing debts on behalf of any Electronic-Commerce Directive (ECD) Lenders where their charges are in excess of the capped rates.

Closing down the loopholes

The FCA has also looked into any potential loopholes, such as UK companies setting up operations abroad, and directing their main business to focus on UK borrowers, utilizing rates over and above the newly capped UK rates. They have been given authority in any such cases to take appropriate action against said lenders.

Before the new caps were introduced the FCA consulted with many industry stakeholders. This group included various professional and academic bodies as well as lenders and consumer groups. At that time, the FCA also forecast that they expected 90% of lenders to freely take part in what is called real time data sharing. This they said would enable the industry to work with current data on the state of the industry. Progress in this area is as expected, so no further consultations are planned at this time.

With complaints about short term loans down by 45%, the new caps appear to be having an effect. It does mean however that the unfortunate 7% of people who cannot access loans are going to have to try and put their houses in better order.

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