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Pay day loans are in the news again.  This time, however, it is the Financial Conduct Authority (“FCA”) which is calling the tune.

Since the beginning of April, regulation of consumer credit (including personal loans and pay day loans) has been handed from the Office of Fair Trading to the FCA.  No big deal?  Don’t you believe it!  The FCA has teeth, lots of them and a serious growl.  But it doesn’t just growl – it bites.

First and foremost, the FCA’s job is to protect consumers or, put slightly differently, to make sure that lenders “treat customers fairly”.  That is not just when advertising ridiculously easy loans which are available instantly or sooner, but in providing pre-contract information, details of default charges, risk warnings to customers and most of all when chasing payment of the arrears.

So, with a view to sending a clear message to pay day lenders, the FCA has announced an in-depth review into their arrears management practices and treatment of borrowers in difficulty.  It has announced it will visit a range of pay day lending firms, assess the financial promotions of pay day lenders, consult on capping interest rates payable under the loan and/or take steps with a view to protecting customers in a balanced way.

Do not be surprised if the FCA announces it intends to investigate a number of pay day or other high cost short-term lenders.  It will be for the lending company to justify its rates, collection strategies and demonstrate in a positive way how it has treated its customers fairly.  “Pay up in 72 hours or else!”  Pretty fair!  Sending a customer satisfaction survey when the agreement is in arrears or court proceedings have been instituted?  Well, no not really.  Suspend interest payments or waive part of the debt liability – that would be better.  Waive default charges – a really good idea.  Try to help the customer find a solution rather than simply rely upon legal rights.  The FCA is likely to set the hurdles at a fairly high level.

The high cost, short-term lending market is expected to respond – quite simply it has to. Some lenders will be driven out of the market, others will reduce or refine the services they offer.  There is no escaping the fact that there is a new watch-dog in the sector which will be keen to meet the objectives it has set.  Pay day lenders urgently need to review their policies.  Customers in financial difficulties and unable to meet repayments or discharge the arrears should think about obtaining legal advice.  The services of a good lawyer and the presence of a strong watch-dog make a powerful combination.  If you have entered into a pay day loan and are in difficulty with the payments, now is the time to take advice.  If you have legitimate grounds to challenge the agreement there is every chance the loan company will listen and work with you to find a solution.