Payday Loan Regulation Change History
Below you will find information regarding the payday loan history from new consumer protection to industry regulations.
To provide further transparency when dealing with payday loan applications, Peachy aims to provide you with the information needed to make sound personal finance decisions.
October 2019 – QuickQuid & OnStride Financial go into administration
Payday brands QuickQuid and OnStride Financial (formerly Pounds to Pocket) enter into administration. The company behind these brands, CashEuroNet UK LLC saw a surge in compensation claims lodged by customers who were sold unaffordable loans that they had no ability to repay without taking out a further loan.
When customers were given this further loan, it was deemed unaffordable, and thus the payday loan lenders had to refund the interest they charged the customers. More information can be found here.
June 2019 – The Money Shop closes down following surge in complaints
Payday lender The Money Shop has closed down after a spike in customer complaints, putting more than 400 staff at risk of redundancy.
The decision follows “poor financial performance” and an “unprecedented number of customer complaints” putting 427 jobs at risk. The Money Shop has agreed to repay back 6,000 payday loan customers some £700,000 in charges. More here.
January 2019 – Peachy cut interest rates by 21%
In a move that goes against how traditional payday loan lenders operate, Peachy took the unprecedented move by cutting interest rates by 21% and reducing representative APR to 855%.
At the same time, the FCA released their annual report revealing that 5,4 million high cost credit loans were issued in 2018, an increase of 17% compared to the previous year. The report found that the average loan is £250 and that more loans are taken out in the North West than anywhere else in the UK.
August 2018 – Payday loan lender Wonga goes into administration
Payday lender Wonga goes into administration and are no longer accepting new loan applications. Set up in 2007, Wonga had seen a surge in compensation claims and the company is no longer able to stay afloat.
Existing Wonga customers must continue to repay their loans; they will not be wiped clean due to the company descending into administration. More information about Wonga can be found here.
May 2018 – Payday loans now cheaper than bank overdrafts
According to the consumer group Which? Bank overdrafts are now up to seven times more expensive than payday loans, with Financial Conduct Authority (FCA) demanding that banks charge no more for unarranged overdrafts than they do for arranged overdrafts.
August 2017 – Borrowers getting better deals
FCA announced that they were very optimistic about the impact of their regulations on borrowers. The FCA determined that borrowers were paying less for credit, re-paying more on time, and needed less support from debt charities.
June 2017 – Payday loan companies must be on comparison websites
Since June 2017, all online payday loan lenders are required to advertise their loans on at least one price comparison website. Borrowers are therefore encouraged to research the market before taking out a loan. Alternatively, this increases competition in the marketplace, offering better deals for borrowers.
April 2016 – Debt help must be advised by lenders
Payday loan lenders must provide you with information on how to obtain free debt advice if borrowers consider rolling over a loan or refinancing.
March 2016 – Financial Services Register
Responsible lenders are encouraged to sign up to the Financial Services Register to ensure transparency and authority for consumers. Peachy became members of this register on 17th February 2016.
2015 – Repeat borrowing
If a borrower wishes to borrow more from a lender, FCA regulations state that a price cap must remain the same as per the original loan.
2015 – Data sharing
Another requirement was that all UK payday loan lenders must share their data in real-time thus ensuring better monitoring of payday loan companies.
2014-2015 – disreputable lenders leave the market
With the introduction of the new regulations in 2014, 38% of payday loan companies left the market whilst others had to declare bankruptcy because of the fines/compensation demanded by the FCA for dubious and misleading business practices.
This is excellent news for borrowers since the companies that exited the payday loan market tended to be the ones that were guilty of irresponsible lending, misleading practices and unfair treatment of their customers.
December 2015 – Payday loan lenders adhering to the new rules
Since 2nd January 2015, no UK payday loan borrower has paid more than £15 in default fees or paid more than 0.8% interest per day, nor have they been charged twice the amount they have borrowed.
2nd January 2015 – new rules implemented
The regulatory changes set out on 1st April 2014 was intended to reduce the cost of payday loans and ensure borrowers never pay back more than double what they borrowed.
These rules are as follows:
- All short-term loans, fees and interest should not exceed 0.8% (per day) of the amount borrowed. Payday loan lenders are permitted to amend changes to the loans providing they do not exceed 0.8% interest per day.
- The FCA set repayment default fees at £15. Lenders can still increase the interest if it doesn’t exceed the cost cap, but late payment fees must be no more than £15.
- The FCA set a 100% cost cap so that borrowers will never pay back more in interest and fees than the initial amount they borrowed.
July 2014 – new risk warning implemented
Payday loan lenders must display a risk warning on all forms of electronic communication and non-electronic media that is:
“Warning: Late repayment can cause you serious money problems. For help, go to moneyadviceservice.org.uk”
June 2014 – Wonga and Genie reprimanded for bullying tactics
In 2014, several firms were reprimanded and directed to pay fines for illegal practices. Among them was Wonga.com which was criticised for unlawfully demanding payment on behalf of solicitors. Cash Genie was also reprimanded for imposing unlawful charges.
April 2014 – Banning part payments by CPA
Payday loan lenders are only able to take payments via a Continuous Payment Authority (CPA) if borrowers have enough funds in their account. Furthermore, they are not permitted to take part payments.
Plus, payday loan lenders are only permitted to attempt the full payment twice if insufficient funds in the account.
1st April 2014 – FCA gets tough
The Financial Conduct Authority (FCA) began regulating payday loans among other forms of short-term credit on 1st April 2014. Initially, the FCA focused on tackling poor conduct amongst payday lenders present in the market.
The FCA introduces new rules on loan costs, repeat borrowing and where lenders can advertise. They were also concerned about the use of continuous payment authorities (where lenders insist on having debit card details to debt repayments). The FCA took over this authority from the Office of Fair Trading (OFT).
Changes are due to come into effect on 2nd January 2015.
November 2013 – Discussions about the costs of short term credit
Plans to introduce a cap on short term credit costs are discussed and were implemented in the Banking Reform Act 2013.
November 2012 – Good Practice Charter implemented
With the explosion of payday loan industry, the companies offering payday loans decided to implement a Good Practice Charter to provide clear expectations of what consumers can expect when borrowing money from them.
Plus, under new FCA guidelines borrowers are only able to roll over loans twice before the balance will be due, protecting consumers from obtaining unmanageable debts. Furthermore, the number of rollovers is set at 3.
October 2012 – Payday loan industry amounts to £2.2 billion
Although this seems a lot, it is dwarfed when compared to credit card debt of £55 billion.
December 2009 – 1.2 million people took out payday loans
2006-2009 – Payday loans increased fourfold
The impact of the financial crisis saw a surge in payday loan applications as traditional forms of lending from bank dried up.
1992 – First payday loan company
The Money Shop opened its first store in 1992, way before the onset of the 2008 financial crisis and subsequent credit crunch.
The 1990s – Exporting to the UK
Although payday lending originated in the US, by the early 1990s, payday loan lenders began to appear in the UK market.