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How Are Short Term Loan Providers Regulated?


In recent years, numerous regulations have been placed upon short term lenders in an attempt to protect consumers. The crackdown started with payday loan lenders, who were once renowned for unclear costs, incredibly high interest rates and irresponsible lending. The short-term credit sector was largely unregulated, but that all changed in 2015.

Understanding industry standards and regulations

These days, short term loan lenders must follow strict rules and regulations in order to stay in business. Things started to change when the Financial Conduct Authority (FCA) took over from the Office of Fair Trading, as the consumer credit regulator in April 2014. Less than a year after the FCA took over, a new cap was put onto how much a short-term loan provider could charge. In addition, all lenders now must be FCA authorised.

It was interesting to see that after the new regulations were introduced, over 5000 short-term loan providers exited the business. Once they realised they would be closely monitored by the FCA, they decided not to apply for a full license. This was good news for consumers as the creditors which chose not to apply were considered the riskiest.

So, does that mean all short-term loan providers are now trustworthy and reliable? Unfortunately not! There are still a lot of providers out there who are taking advantage of the voluntary guidelines. So, if you’re looking for a reliable short-term loan provider you can trust, you’ll need to go for one that has a great reputation such as Smart Pig.

Some concern remains over advertising

The main concern in the short-term loan industry at the moment, is the advertising and marketing rules. Experts claim stricter regulations would be beneficial as currently creditors only need to follow voluntary guidelines.

So, what does this mean for the consumer? Well, the voluntary guidelines state that short-term loan lenders should not:

  • Target financially vulnerable consumers
  • Advertise to children
  • Incentivise getting into debt
  • Trivialise debt

The genuine, most reliable lenders did agree to these voluntary guidelines, however there are still many lenders who don’t. Likewise, a lot of lenders do not carry out appropriate checks to determine whether a potential borrower can afford to repay the credit they take out. These are considered irresponsible lenders and should be avoided at all costs.

Overall, the way short term loan providers are regulated has improved massively in recent years. While some work still needs to be done in terms of advertising, it is pretty easy to spot reliable lenders these days.

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