Three Most Important Changes to Payday Loans

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Incredible number of changes have been made to the instant payday loans UK online, as the part of the reform that should completely alter the way the short term loans are offered to clients. Among the biggest changes to have taken place are the FCA (Financial Conduct Authority) price cap, new rules in relation with a CPA (Continuous Payment Authority) and a limit on roll-overs.

Fine, but what effect will those changes have on me?

We will start with discussing the price cap that has been put in place by the FCA. The Financial Conduct Authority has taken the responsibility for the sector of instant payday loans UK online in April 2014, and during the summer they suggested inducing a new price cap for this sector. This cap considers the amount of money that clients can be charged when taking out payday loans UK, including but not limited to interest and late payments fees.

The price cap sets the limit of 0.8% per day on interest and charges on newly taken loans, starting from January 2015. This practically means that the intrest and charges must not be over 0.8% per day of the of the outstanding capital balance. At the same time, fixed default charges were capped at £15 and the cost paid for taking out a payday loan may not go over a 100% of the value of the loan.

What this actually means for clients? Obviously, first thing that is noticeable is that it is a big step in cutting out the cost of taking out instant payday loans UK online with some companies. While the 0.8% per day, which equates to 24% in 30 days is not massively below the 25% charged by some lenders, those who charge 30% or even 35% will have to reduce their rates. The bigger benefit is the overall cap on 100% of the loan borrowed. With some loans, even if the borrower did not default could result in paying back 3 times the amount borrowed. If the customer defaulted then this was just the starting point. Now, if you borrow £100 then the maximum you will pay back under the cap will be £200. 

What is the limit on rollovers?

Before the new regulations were installed, you were able to rollover the repayment time of instant payday loans UK online until the next payday. This process could, before the rule change effectively go on and on and on. However, the new limit in place will prevent the loans being constantly rolled over, with additional rollover fees and the increase of interest occurring every time, by putting in the restriction of rollovers to two, after which the loan will become due in full. 

This will stop a short term debt for converting into a long term one, which will be much more costly overall, What the limit also does is mean that if the lender realises you cannot repay after the 2 rollovers, they can extend the repayment period, but only using 'forebearance'. What does this mean, well simply out it means they cannot charge you any further fees or interest. This means that the balance on teh loan will effectively be frozen and future payments, however small, will erode the debt. It should be noted that if the lender chooses to they can not agree to futher rollovers by forebearance and leave the loan in arrears, many then will be able to charge default interest upto teh rate cap levels.

Are new CPA regulations a good thing for the clients?

A Continuous Payment Authority basically represents a way for a lender company to take money from the client’s bank account. A lender can do this to withdraw money from the customer debit card in accordance with the terms set out in the loan agreement, but without every attempt needing the customer to authorise it. The new rules that were implemented for High Cost Short Term Credit place a limit when it comes to the number of times a lender can go ahead and try to withdraw the cash via this Authority, with two unsuccessful tries now being the limit that can’t be exceeded. Instead of regular attempts to withdraw the money from the client’s account, the lender company is now forced to contact its client in order to discover why he didn’t make the payment for his instant payday loans UK online. This is definitely a good thing for clients, as many of them are living pretty close to their budgets, and CPA has been seen to have caused them big problems by withdrawing the money in the past.

With these new regulations installed, there is less likelihood of missing some essential payments due to the fact their account went overdrawn because of the CPA. On the other hand, this also means that the lender company will take on resolving the issues more quickly, in difference to just noticing that CPA failed in the past. So, practically whether this is a positive thing for the client depends solely on the way the lender chooses to deal with the problem.