Short-term, high-cost loan suppliers face new regulations that could spell their demise. The grown in payday and quick-fix loans has been astronomical, as companies look to take advantage of a cash-strapped and debt-laden nation. In the wake of the economic depression, Many Americans face financial problems each and every day in regards to bad credit or mounting debt. Banks have become warier, adopting stricter policies in terms of who they will lend money to, therefore a demand for a desperate alternative has arisen.
Payday loan companies have filled that gap by providing short-term loans to those with no other option, designed to cover sudden expenses and to be paid back within a matter of days with a huge amount of interest added on. Importantly, these companies do not check credit history, making them an attractive prospect to those who have a poor financial or repayment history. Payday loans can be a successful quick-fix, but more often than not will exacerbate the problem. It also leaves borrowers at risk to predatory lending.
The government and FCA (Financial Conduct Authority) has therefore sought to stifle such practices by imposing tougher regulations designs to help the desperate consumer. The rules, which will be enforced in July, include limiting the amount of times a loan can be rolled over (or put forward to be repaid the next week at a cost) and how many times a firm can attempt to collect repayments from bank accounts. There will also be a total credit cap applied, ensuring that consumers cannot borrow more than a certain amount.
It remains to be seen whether or not these rules will be adhered to successfully, but many are already predicting something of an exodus from the payday loan industry as a result. Some believe that the new rules will render the sector unprofitable for many firms, and so they will shut up shop rather than adapt. Experts expect between a quarter and a half of all payday lenders to close following the introduction of these new rules, which could spell the end of fast-cash lending as we know it.