Payday loans in the UK are strictly regulated by the Financial Conduct Authority (FCA). The FCA regulate financial firms, including payday loan companies, banks, building societies and credit unions. They make rules to protect customers, encourage fairness, clarity and quality and monitor the way businesses are run. Companies who are registered with the FCA must meet a number of requirements which include demonstrating that they have adequate company systems, budgets and business plans.
If a company does not follow the FCA rules, they will be investigated. They could be fined or stopped from trading altogether. Here are some of the regulations a payday loan must follow as an FCA member:
The warning rule
Payday loan companies must have a warning on all their electronic documents advising you that late payment can cause problems. They must also give you the web address or a link to The Money Advice Service.
What are roll-overs?
If you ask your loan company to defer a payment, this is called a roll-over or deferral and it means that you make your repayment the next month instead. It does help you if you have difficulty paying, but you will have to pay more interest. If you get into this situation, you should contact your lender directly to understand their roll-over policy. This might not seem very flexible, but it will protect you from getting into a lot of debt with your payday loan company.
Can I ask the payday loan company for an extension?
if you wish to extend your loan you must speak directly to your lender, they maybe able to assist with a repayment plan more suitable to your requirements at that time. You can ask your payday loan company to lower the amount you pay for each instalment or to extend the loan’s duration if you are having difficulties. If you do, the loan company must send you information about how to get free debt advice. If you feel your debts are getting out of control, a debt advice company can help you draw up a debt management plan.
You cannot be made to pay back more than twice the amount you borrowed and daily interest rates are at a set rate, they cannot change. Basically, if you have borrowed £150 and you end up paying it back after the due date, your interest charges will never be more than £300, which is twice the amount you borrowed. The quicker you can pay off the debt after the due date, the less you’ll pay in interest charges.
What is the Continuous Payment Authority?
A Continuous Payment Authority or CPA is a payment agreement. It is between yourself and anyone you owe money to, like a payday loan company. For example, you give your payday loan company permission to take the repayment amount directly out of your bank on a continuous basis, without you having to authorise the payment every month. It is similar to a Direct Debt, but a CPA is a legal contract between you and the business you are dealing with, like the payday loan company. A Direct Debit, on the other hand, is an agreement between you and the bank.
A payday loan company cannot take the money out of your bank if you don’t have enough to pay the whole instalment. In other words, they can’t take some of the money in a part-payment. If you get into difficulty and you want them to take less than the agreed amount (which is better than paying nothing at all) you will need to talk to your payday loan company and re-arrange the payments.
CPA Payment Collections
As well as the rules regarding part-payment collection, there is another rule about CPA collections. This rule is about the number of times a payday company can try to take out your repayment from the bank. If they try once and you don’t have enough money to pay them, they can only try again one more time. That means they can only try to take a repayment twice. If at the second attempt you still don’t have the money in the bank , they will contact you to find out why you aren’t able to make the repayment.
When you apply for a payday loan, always use a company that is regulated by the FCA. If you don’t, you will not be protected by their regulations and could find yourself paying massive interest rates, which could spiral into a debt so large that you can’t pay it and end up with a Court Order and visits from the Bailiffs. You’ll know if a lender is regulated by the FCA because they will have a website and the debt warning will be on it. You can also search the Consumer Credit Register on the FCA website.
MoneyPod are committed to responsible lending. We insist that all of our panel of lenders have a Responsible Lending Policy and are diligent in meeting their obligations.