Is The Payday Loan Industry Ethical?

Over the years, the payday loan industry has received a vast amount of negative press based on practices of some of their main lenders. However, this is not the case for the entire industry. In this article, we will be providing you with insight into whether the payday loan industry is ethical or not In 2020.

FCA Regulation The Payday Loan Industry

Before FCA intervention in the high-cost short-term credit sector in 2014, the industry remained relatively unregulated with many lenders able to charge interest and several other charges onto loan amounts, making it virtually impossible for a payday loan to be paid back in full. However, since the intervention of the FCA in 2014, loans for bad credit direct lenders and several other loan lenders have had to change the way that they operate in order to abide by these new regulations. They are required to do vigorous background checks on credit score and monthly income as well as pass the checklist points in order to be a registered lender with the FCA.

New Rules For The Payday Loan Industry To Follow

Following a report conducted by them, the Financial Conduct Authority implemented three simple regulations that every lender must follow. These revolutionised the industry as we know it and enabled the sector to not only be safer for the borrower but also more competitive for those smaller lenders within the industry. Each of these rules are as follows:

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An Initial Cost Cap Of 0.8% Per Day

This was devised to reduce the cost to the lender. This will mean that the price is kept at an affordable amount.

Fixed Default Fees Capped At £15

By capping these fees, the FCA made sure that being able to pay back these loans was much more affordable for the borrower. Within this change to the regulation, it is also stated that the interest on unpaid balances must not exceed the initial rate.

A Total Cost Cap Of 100% on any loan

This was put in place in order to protect the borrower from escalating debts. This was designed to make sure that borrowers never have to pay back more in fees than the amount borrowed.

Each of these new regulations has enabled more control over the lending of money to those applying for this loan time and have provided a level of security for those that are. In addition, from January 2015, no one borrowing from a lender in this category will ever have to pay back more than twice of what they are borrowing.

Risk spelt in letters

Transparency Surrounding Risks

In addition to these regulations, there is also a significant amount of transparency surrounding the risks associated with payday loans and the impact that it can have on your credit score. With several lenders providing contact us information allowing you to get in touch at every stage, lenders are expected to do more to protect the finances of those borrowing from them. Whether it is to let them know of a defaulted payment or just asking to know more about them before applying, there are several lenders out there that provide guidance and information surrounding the loan you are looking to take out.

Applying For Payday Loans Online

Another element to remember when asking if the industry is ethical is the online application. With 2 different types of credit check taking place when you apply as well as checks on the monthly income, there are several checks in place to make sure that the decision made by the lender on whether or not you have been approved is an informed one.

With this in mind, there have been several changes over the course of the last 5 years that has made the payday loans industry far more ethical when it comes to their everyday practices.

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