What really keep people away from payday loan
borrowing even after their numerous benefits? Obviously the reason is high borrowing cost including interest rates, loans fees and other default expenses included in borrowing. So, Financial Conduct Authority is planning to put cap on these expenses to reduce cost for borrowers. It will not only enhance payday borrowing but will also boost up financial security towards short term loan borrowers. It will also change lenders’ behavior.
New rules want to make sure that borrowers must not be forced by lender to pay more than double of what they have borrowed. As per FCA, interest rate will be lower down to 0.8% per day further lowering down loans cost to 100 % of original sum. Thus people will not have to struggle much to pay off their debts. These new implications are supposed to come in action on January 2, 2015. It will be considered as Christmas gift to financial life of consumers.
These consequences are not set to throw payday lenders out of business; it is just to warn them from being unfair towards borrowers. It is expected that they will lose borrowers by 7% because of decrease in their personal profit. Thus, it will strike financial market to provide right balance between lenders and consumers. It will protect people from hassling stress of paying off their debts. Substantial protections will come forward for those who do pay back loan amount on time. Since FCA took over regulation of consumer credit, then borrowing amount has dropped by 35%.
New Rules for Payday Loans demand to Cap Fees and Default Charges
By intruding cost cap, banking system will be boosted up that works for hard people. All this is a part of big economic plan. As per current scenario, it has been observed that payday regulators are not listening to them. However countries like Canada and US are paying attention towards cost caps to bring economic balance. Thus, Borrowers in Australia, Japan, US and Canada are attaining much protection as compared to US. Regulators have to follow these rules so that they may not lose their borrowers. Thus it will bring an end to partial lending that we have seen so far in this industry. Even under new rules some people will be seen paying off large amounts because of their previous debts.
Reports say that many lenders will step out of payday lending market; however some borrowers will also step back from payday loans because of less availability of online lenders.