Payday loan regulations may be detrimental to consumers
22/10/2014
The Consumer Finance Association (CFA) believe borrowers who are denied credit from payday loans under new lending rules, may actually end up worse off than they would have done if they were granted a pay day loan.
The FCA recently brought in new regulations to conduct more affordability checks and put controls on Continuous Payment Authorities, which allow lenders to take money from people's bank accounts.
The CFA, a trade association representing the interests of major short-term lending businesses, have taken a survey which shows that only a quarter of people would be better off when denied a short term loan. This is because a consumer may miss a bill payment or go into an unauthorised overdraft, which may then lead onto late payment charges or defaulting on payment plans.
The survey of 720 people who have been decline a pay day loan throughout July and August of this year, also showed that a third of people have considered using a illegal or unlicensed lender to access the funds they require.
The CFA believe many borrowers who are now being denied short-term loans are being driven to less desirable forms of credit or deeper into financial crisis.
Russell Hamblin-Boone, Chief Executive of the Consumer Finance Association, which represents some of the best known short-term lenders said:
"Hundreds of thousands of people are now out of credit. Our survey shows that these are people who need the most protection but are at risk of using illegal or unlicensed lenders, which operate out of the reach of the regulator. Being denied access to short-term credit is reducing their options, costing them more and putting them at financial risk.”
Citizens advice believe that High Street banks should offer "responsible micro-loans" as an alternative to payday loans to combat the problem. Gillian Guy, chief executive of Citizens Advice said:
"People should not be given payday loans they have no chance of repaying. Anyone who is turned down for a payday loan should be pointed towards free, impartial debt advice to help them address their money problems"
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