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How safe are payday loans?

is-it-safe
12/13/2016
By: admin

 

Payday loans often receive a bad name in the press, being constantly dubbed as unfair and unethical. This is certainly not the case as of the introduction of the Financial Conduct Authority in 2014 who took over regulating the industry from Financial Services Authority.

These myths which dominate discussion about the payday loans industry is rather unfortunate (and untrue), as many people in a number of different circumstances benefit so heavily for payday loans. They are a quick and easy way to obtain short-term credit, meaning you will not remain in debt very long, unlike with a long-term agreement. Payday loans are particularly useful to help cover an unexpected emergency expense and to receive funds within a few hours.

The industry is heavily regulated and customers can have peace of mind knowing that payday loans are safe, as highlighted below.

FCA Regulations in The Payday Loans Industry

As mentioned, the payday loans industry is heavily regulated by the FCA. The regulations introduced by the FCA aim to ensure that the payday loans industry remains safe and free from unethical lenders.

Some major rules which have made a big difference to the industry, as drawn up by the FCA, include:

  • A price cap of 0.8% per day on interest rates to ensure that they are fair to the borrower and helping to avoid any borrowers finding themselves in spiralling debt. This debt was more of a regular occurrence prior to the introduction of the FCA since the interests were so high, so people had to borrow again just to pay off their previous loan plus interest.
  • Payday lenders must now be completely transparent in the information which is provided by them to their customers, prospective or otherwise. This way, customers of any lender are able to see exactly how much they have borrowed and the terms and conditions of each loan type have been clearly stated.

As of recent, there have actually been calls for the FCA to extend the cap on payday loans fees to other forms of credit, since it was so effective on the former. This is a sure indicator into how safe payday loans actually are at present.

Check the company is on the FCA register

Before putting through any applications, you should check that the lender you are hoping to deal with are on the FCA register. If you are having any doubts at all, you need to check whether the company name features on the register. Being on the register means that they have been authorised as an ethical lender by the FCA. To find out if they are on the register, simply type their name into the search and if they are not registered, they will not come up. Avoid any lenders not on this register at all times.

Furthermore, you can check whether the lenders website is secure by checking the address bar. If it says HTTP:// you should avoid it and look for addresses which start with HTTPS:// as the S stands for secure. This way you will know that your data is going to be protected on that specific website and they will not fall into the wrong hands, resulting in robbery or fraud.

Complain to the Financial Ombudsman Service

You can rest assured that if you do find that you are unhappy with the service you received from a lender, you are entitled to file a complaint to receive compensation or a refund via the Financial Ombudsman Service. You may have been accepted for a loan which was realistically unaffordable for you and then find yourself unable to make the repayments.

The FOS can help you settle any problems you may be having with a loans company. Any disputes can be dealt with quickly and informally between people and businesses. They are always independent, meaning their position in any dispute will be neutral.

GDPR

You may have heard a lot about GDPR recently, which stands for the General Data Protection Regulation. This was introduced in May 2018 and has actively worked to further the safety of the payday loans industry.

The new regulations now in place give consumers much more power over how companies share, use or alter their personal details. When comparing the data protection laws which were in place before now, it is a lot harder for any company to abuse their use of power in terms of the details you provide them.

GDRP does play a large role in ensuring the security and safety of payday loans overall.

In order to get a loan, you will need to provide your lender with personal details including your bank details and credit history. Obviously, you would not want these to fall into the wrong hands. Thanks to GDPR, you can rest assured they will remain between you and the lender.

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