With inflation becoming a norm, the everyday expenses are increasing. Moreover, the salary ranges are not increasing at the same rate. Therefore, majority of the people are not left with any option but to go for taking loans. While there are various types of loans that you can opt for, payday loans are especially popular among people who have a monthly payment check on which they can rely to pay back the loans.
Payday loans are a specific amount of money that lenders lend on the condition that the borrower will return it in with their next paycheck. These are also called short-term loans and have higher interest rates then other types of loans.
The Need to make New Rules
Previously, you can borrow these loans from any party. However, as the loans became more popular, the procedure was made to be authorized and regulated by Financial Conduct Authority (FCA). Initially the rules were rather relaxing. However, there were many cases where the borrowers were harassed or they were made to roll over the money for so many times that with the increasing interest and extra fees, the amount became impossible to pay. Therefore, FCA decided to tighten their policy and made new rules to regulate the payday lending procedure. Their main objectives are as follows:
- Making sure that money is only given to people who can afford to repay it.
- To ensure that the borrower knows about the risks involved if they fail to pay the loan back. The body also ensures that the borrowers are provided with help if they face any financial difficulty.
What the New Rules are about
Taking into account the various difficulties related to payday lending, FCA decided to make a few very specific changes in the rules regarding payday lending. These changes were made after considerable research and address some very important points. These are as follows:
Limit the Number of Times Lenders Can Roll Over A Loan
First of all, you must understand the concept of rolling over. When you decide to take a payday loan, it means that you will return it in a period of time as agreed upon by you and your lender. However, in case, you are unable to pay it back in due time, you can go for the option of rolling over. It simply means that you need more time to pay back the money and will return it next month. However, this decision also means that you will be charged an extra sum of money as fee and the interest will also apply. As a result, a small amount of money will turn into a large sum.
To address this issue, FCA decided to put a limit on the number of times you can opt for roll over. Now you can only roll over the money two times and after that, you must pay it. This will keep you from spiraling loans. However, in emergency cases, you will have the chance to roll it over a third time as well. If your issues are serious and genuine, the authorities can also provide you with financial help to pay off your debt.
Limiting the Use of Continuous Payment Authority (CPA)
A CPA is a method of money collection often used by payday lenders. This allows them to take money directly from your banks. Moreover, they can take any amount of money at any date. This is a disastrous practice because even if it is their money they are taking back they do not have any idea of your financial situation. What if they take out all the money from your account? This might even hinder a borrower from paying bills that are more necessary.
However, the new FCA rules have limited the number of times CPA can be used. They can use it for only two times so they will not be able to continuously withdraw money from the borrower’s account.
Issuing a Warning Beforehand
In many cases, payday lenders decided to take their funds directly from the borrower’s account without issuing a warning beforehand. FCA made a rule to counter this bad practice. It is now necessary for the lenders to first issue a risk warning about fees and other extra charges in case of rolling over.
Giving Information for Free Debt Help
According to the new rules of FCA, all lenders are bound to provide necessary information concerning free debt help to the borrowers when they are looking to roll over. This will curtail the practice of unnecessary rolling over.
Moreover, the lenders are not allowed to make repeated calls to you at work. This is also a rule by FCA and if any lender follows this practice, it will be akin to harassment. If you find yourself in such a situation, you have the right to consult the authorities.
These new rules are the first step at making things easier for a borrower. However, you must understand that payday loans are a type of short-term loans that you should only opt for in case of emergency. If you are finding yourself continuously relying on this method of borrowing to cover your finances then it is high time you should stop and take a look at your expenditures. May be you need to cut some expenses and budget your finances. Instead of borrowing more, you should talk to your lender. They will give you good financial advice and must help you manage your finances in a better way. They are required to do that as [per the FCA rules.
Other ways to deal with a financial crisis include making your financial payments using a credit card as that will save you from paying extra interest if you decide to pay the complete amount.
Are you planning to opt for a payday loan? You should do that after comparing all the services and their deals. This service is easily available at Quiddicompare Payday Loans website. Not only it provides you with all the reliable options but also it is very user-friendly.