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.

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.

According to the Citizens Advice Bureau, at the beginning of 2015, they found there was a 45% reduction in people coming to them for advice about problems with payday loans.

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

According to the Financial Conduct Authority (FCA) 1.2 million people in the UK took out Payday loans amounting to 1.2 billion pounds.

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.