Payday lending costs to be capped (allegedly!)

legal updates

Reports of lenders charging £2000 - £5000 annual interest (APR) are not unusual but the question is – are they unfair?

Read our disclaimer keyboard_arrow_down

This website content is intended as a general guide to law as it applies to the motor trade. Lawgistics has taken every effort to ensure that the contents are as accurate and up to date as at the date of first publication.

The laws and opinions expressed within this website may be varied as the law develops. As such we cannot accept liability for or the consequence of, any change of law, or official guidelines since publication or any misuse of the information provided.

The opinions in this website are based upon the experience of the authors and it must be recognised that only the courts and recognised tribunals can interpret the law with authority.

Examples given within the website are based on the experience of the authors and centre upon issues that commonly give rise to disputes. Each situation in practice will be different and may comprise several points commented upon.

If you have any doubt about the correct legal position you should seek further legal advice from Lawgistics or a suitably qualified solicitor. We cannot accept liability for your failure to take professional advice where it should reasonably be sought by a prudent person.

All characters are fictitious and should not be taken as referring to any person living or dead.

Use of this website shall be considered acceptance of the terms of the disclaimer presented above.

The government has declared that it will introduce law to cap the cost of credit that payday lenders will be allowed to charge borrowers.

Reports of lenders charging £2000 – £5000 annual interest (APR) are not unusual but the question is – are they unfair?

After all, APR is calculated on the percentage interest rate over a long time.  When that calculation is made over a short time period then the figure can become distorted.  A bank may offer loans of 8% APR but do so for loans over 5 or 7 years.  The APR calculation, when devised, was never intended for loans that are 28 days in length.

Think of it this way.  A mortgage on a 3 bedroom house may cost you £800 a month for 25 years costing £240,000 over the full term.  A hotel room in the same area may cost you £100 a night.  That equates to £3000 a month and to £900,000 over 25 years.   

Of course, no-one has a hotel room for so long but what this shows is that what you sometimes cannot compare is long term with the short term.

What needs greater prominence (in the opinion of the writer) is that more attention is given to affordability and the amount of times payday loans can be “rolled over” along with dealing with genuine defaulters in a more appropriate manner.

“Interest”ingly (pun intended) it has been alleged that borrowers who have previously taken out a payday loan are being declined a mortgage.  Of course, this could be true but it could equally be urban myth.

We will watch closely to see how the government moves from here but if they get it wrong then it could simply narrow access to credit even further with the result that people will turn to illegal (and often very violent) loan sharks instead.  

ECSC Group plcMore Secure

On average 55 vulnerabilities are identified daily.

What can I do?

Review your organisations priorities and ask ‘can we afford a breach?’. What do I do during an incident? Who do I involve? When do I involve the ICO?

If you’re unable to answers these questions, you need help from the experts.

Dennis ChapmanIn remembrance of Dennis Chapman 1951 -2015Read More by this author

Related Legal Updates

While We Wait: Preparing for the FCA’s Review on Motor Finance Commissions

As anticipated, the FCA was not particularly helpful when questioned about the various issues of investigating complaints that were outside of the standard retention periods for documentation.

FCA Commission Review: Separating fact from fiction in the wake of scaremongering

Attend a complimentary seminar hosted by the FCA for first-hand information – Scheduled for Wednesday, 24 January 2024.

The FOS reports over 10,000 motor finance complaints: Are we really surprised?

The good news currently is the FCA is focussing its attention on the lender and not our members.

The FCA means business

The FCA are closely monitoring how firms are putting their new rules in place and will take action against those that aren’t following them.

Financial promotion on social media

The FCA’s supervisory approach to financial promotions in social media was issued in 2015.

Another victory, but the problem has still not gone away!

The FOS confirmed in the article they had not yet published any final decisions on commission-related complaints.

Mental Capacity – a person’s ability to make a decision

This is not a “one size fits all”, and you will need practices and procedures in place for such an eventuality.

Get in touch

Complete the form to get in touch or via our details below:

Phone
01480 455500
Address

Vinpenta House
High Causeway
Whittlesey
Peterborough
PE7 1AE

By submitting this quote you agree to our Terms & Conditions and Privacy & Cookies Policy.

This site is protected by reCAPTCHA and the Google Privacy Policy and Terms of Service apply.