How Changes with the FCA Regulations Protect Consumers

The recent changes in payday regulations have most consumers in the lending market more confused than ever. With more than 1.6 million people taking out payday loans each year, how much of an impact will the changes made by the FCA have on the market?

What Changed?

The new regulations set by the FCA introduces three significant changes:

  • Cap on the total cost of credit
  • Clarification on CPA, or Continuous Payment Authority
  • Clarification on affordability assessments

What They Mean

With the implementation of a cost cap, borrowers will no longer have to pay back more than twice the loan amount. The cap limits all interests and fees to a maximum of 100% of the total loan amount, ensuring that borrowers pay only what they are supposed to pay. Before the changes in the FCA regulations were made, lenders charged up to three times the total loan amount. The rule change sets up a fair arrangement where borrowers pay less and lenders see fewer defaults on payment. .

Another change made in the FCA regulations concerns clients whose accounts have CPAs, or Continuous Payment Authority. In the past, lenders could take out multiple payments from their clients’ accounts within a period of one week via a CPA. The recent FCA rule change no longer allows this, setting a limit that lets lenders use the CPA on a client’s account a maximum of two times. It also adds emphasis on the fact that the clients are free to cancel the CPA if they so choose.

Lastly, the FCA rule change puts a stricter implementation of affordability checks. Under the new FCA rule lenders will be required to carry out procedures that ensure affordability based on the client’s income and credit score. This means borrowers will no longer be lent more than what they can reasonably pay back. On the other hand, the rule change also makes it difficult to improve one’s credit score because lenders do not base their decisions on the client’s credit report. Affordability checks are now an important component in the lending approval process, with some lenders already being penalized for failing to comply with the new FCA regulations.

The changes in the FCA regulations have had a significant – but not crippling – impact on the payday loans market. More information about the rule changes can be found on the FCA’s official website, and through Money Advice Service

Your Credit Report from a Creditor’s Perspective

In this day and age, the one thing that best reflects how well or how poorly you are doing financially is your credit report. How well you score on your report determines whether you can afford to make large expenses or not, such as buying a house or a car. It is also crucial in determining whether you can get approved for a loan or not. A good credit score makes all the above mentioned situations possible, while a bad rating can get your loan application denied outright. It is therefore important that your credit report is accurate. Errors in your credit report can lead to delays and aggravation. They can also get your application declined even if you have a good credit rating. It helps to request a copy of your credit report before filing any loan or credit card application just to make sure that all of the information creditors will see on it are correct.

Personal Information

While this section of your credit report does not impact your score, it does serve as your identification. The fields included in the personal information section are as follows:

  • Legal Name
  • Current Home Address
  • National Insurance Number
  • Birth Date
  • Employment Information

Make sure to have all the required data filled out correctly in order to avoid delays in filing your report.

Credit Accounts

The credit accounts section of your report is also sometimes referred to as your trade lines. Establishments that you have had credit with submits the following data and includes them onto your credit report:

  • Type of Account (credit card, mortgage loan, etc.)
  • Date the Account was Opened
  • Credit or Loan Amount
  • Current Balance
  • Payment Records

Your payment records also show any late payments that you may have made in the past.

Credit Search

The credit search section of your report shows a list of every individual or company that you have allowed to run your credit in the last two years. The list is generally divided into two sections:

  • Voluntary Inquiries – These are requests that you have made for your credit report
  • Involuntary Inquiries – These are when lenders and other credit agencies request for your report

Review this section of your report and make sure that no one has run your credit without your knowledge. If you happen to find any anomalous entries, especially in the involuntary inquiries section, identify the lender that ran your credit and find out why they submitted an inquiry.

 

Public Records and Collection History

This section provides information that is readily available for public viewing, including records obtained from county courts and collection agencies. Other details include:

  • Bankruptcy Claims
  • Insolvency
  • Home or Property Repossession
  • Unpaid Debt Under Previous Address
  • Any Fraud Committed
  • County Court Rulings

It is important that the information reflected in this section is accurate. If you find errors, contact the lender or agency listed in your report and have them update the information on your report. Remember that public records don’t always get updated automatically, so be sure to check for errors and make all the necessary inquiries appropriately.

Familiarity with what information is on your credit report can help you prepare for any questions that lenders or credit agencies might have for you. It is important that your report accurately reflects your current financial standing, as any inconsistencies may result in your loan or credit card application being declined.