Debt is a big word. It covers everything from mortgages to payday loans and their illegal counterparts. Sometimes it can be cheap, such as when you pay for a group meal and your companions pay you their share the next day – no interest applied. Sometimes, however, it can be expensive, in the case of products such as credit cards, store cards and payday loans, it can be from very expensive to extremely expensive. Since the 2008 financial crisis, however, successive governments have been working to get a better deal for borrowers.
2011 – the end to lender-friendly payment hierarchies
Some forms of debt can carry variable interest rates, for example credit cards could have an introductory rate for balance transfers, a standard rate for purchases and a higher rate for cash withdrawals. Up until 2011, lenders were within their legal rights to distribute payments as they saw fit, so, for example, if you had a balance transfer deal, some standard purchases and a cash withdrawal, your lender was perfectly entitled to put all of your payment towards the interest on the balance transfer and keep earning full interest on the standard purchases and cash withdrawal. In 2011 however, the rules changed and lenders became obligated to apply payments to the highest-interest debts first.
2014 – the FCA begins to regulate payday lenders
On April 1st 2013, the old Financial Standards Authority ceased to exist and the Financial Conduct Authority took over. By October that year, there were already indications that the (then) new FCA intended to clamp down on payday lenders and by January 2015, payday lenders were operating in a market where there were price caps on loans and an obligation to make more stringent affordability checks, as well as to be more careful with their advertising. Instead of reducing the number of complaints received about them, however, these actions actually increased them. In early 2013, the old FSW received in the region of 30 to 40 cases a month relating to payday lenders. In the second half of 2016 it received 5,095. It does, however, have to be acknowledged that the publicity around the change from the FSA to the FCA and around the FCA’s intention to get to grips with the payday loan industry could have raised awareness of this channel amongst consumers and that this may have contributed, at least in part, to the rise. It’s also worth noting that in 2016, claims relating to payday lenders were only a small part of the overall number of complaints received by the FCA, with PPI accounting for over half of them.
2018 – the Treasury provides funds to pursue “nasty lenders”
“Nasty lenders” more commonly known as loan sharks, have, sadly, been a feature of the lending landscape for many years and since they often operate outside the law to begin with, there is little point in trying to influence them through regulation and oversight. Realistically, the only way to clamp down on this particular sector is through a combination of conventional law enforcement and providing alternative ways for borrowers in difficult circumstances to get access to affordable credit. The treasury has therefore pledged £5.67 million to do exactly that. The money will be given to regional Illegal Money Lending Teams, which are tasked with dealing with the problem of illegal lending, also known as loan sharking. Furthermore, over £100,000 of the funds already seized from loan sharks will be used to encourage vulnerable people to seek help from a credit union rather than taking out a loan from an illegal lender, particularly since these lenders are infamous for not only charging high rates of interest but also for using extreme enforcement methods, which would never be permitted by any court of law.
If you feel pressured by lenders, please give us a call to see how we can help.