Why should loans be regulated?


In recent years, the UK has seen legislation ensuring that companies providing or trading credit are more strictly regulated.

For years, the online lending industry has been self-regulated by the Office of Fair Trading, meaning it has been presented with a set of guidelines to follow for things like fees, charges, and charges. transparency, but they have not been strictly enforced. But why should we regulate loans? We investigate below.

Avoid scams

Loans need to be regulated more strictly to prevent the activity of untrustworthy businesses, which can end up cheating customers and becoming victims of fraud.

How can this happen? A customer can provide their contact details on an online loan application on a bogus website. This information is not kept secure and is then passed on to third parties who use this information to scam the customer, without providing the loan.

It could also be phishing phone calls, in which bogus loan companies pretend to be a legitimate business and attempt to obtain financial information. As indicated by the FCA, customers are called in by scammers who tell them they have to pay an upfront fee to access the loan – last year that was an average loss of £ 740 per customer.

This is why it is important to consult the FCA registry to verify that the loan provider is authorized, so that you do not become one of the 4,700 loan fee scams reported to Action Fraud each year.

To ensure customers are not overcharged

Prior to the FCA’s price cap in the payday loan industry, some lenders in the market charged APRs as high as 5,000% and even 10,000%. The price cap introduced in January 2015 limits charges to a maximum of 0.8% per day, which means the APR is around 1,200%. Default charges are also capped at £ 15.

A price cap also encourages new competitors in the industry to undermine existing lenders and compete on price. Recent rules require lenders to post a link to at least one price comparison site to ensure customers can compare loans more easily

To ensure consumer confidence in borrowing

Better regulation helps maintain consumer confidence when it comes to borrowing money in stores or online. It boosts the economy by providing jobs, rents and more, and it reduces the need for borrowers to seek illegal borrowing, including loan sharking.

Increase customer understanding

Another benefit of the recent regulations implemented means that lenders must now offer borrowers much more transparency about the additional fees and charges associated with taking out a loan.

This means that customers are less likely to get caught up in large charges for missing repayments and run into more debt.

Information extracted by Robert Quinn.

Source link