Tougher codes being proposed for payday loan companies will put the squeeze on unscrupulous lenders and encourage a further boom in local credit union membership.
That’s according to Somerset Savings and Loans treasurer Paul Urch, who said tighter regulation would help credit unions take on the payday lenders where it mattered – on the doorstep.
He said: “It all comes down to time and money. One of the only perceived advantages payday lenders have over credit unions is the speed with which they can process a customer’s application.
“As a credit union we have to carry out proper ID checks, affordability checks and credit agency checks before we lend anybody any money. This takes time and builds in unavoidable administration costs.
“Hopefully, the tighter regulations being proposed by the Financial Conduct Authority will oblige payday lenders to spend the same time and effort and responsibility when processing an application as we do. I think it’s a pity their interest rates are not capped like ours at 26.8 per cent APR to make competition even fairer for the consumer.”
The Financial Conduct Authority will take over regulation of consumer credit from the Office of Fair Trading in April next year and sector commentators are forecasting the toughest crackdown yet on payday lenders.
The FCA was formed six months ago tasked with strengthening protection for credit consumers and is expected to recommend limiting the number of times a payday loan can be rolled-over, banning misleading advertising and introducing compulsory affordability checks for all loan applicants.
Paul Urch said the FCA crackdown couldn’t come soon enough.
“Ironically the ease and speed with which people obtain cash from some of the payday loan companies has always been seen as a key factor in their success.
“By obliging them to operate to the same set of rules as we do means we can take the payday loan companies down a peg or two and persuade people to turn to their local credit union rather than run the risk of piling up debts they can’t hope to clear.
“Many pay day loan companies operate strictly short term loans – offering customers just a month or so to repay. We structure our loans to give people an opportunity to repay over a longer period at far more sensible and sustainable rates of interest.”
Portishead-based Somerset Savings and Loans has seen its membership double since the beginning of the year following the launch of a new website and a county wide campaign to raise the credit union’s profile.
Paul Urch said increasing media coverage about the ruinous interest rates charged by some payday loan companies had accelerated the trend.
Somerset Savings and Loans is a not-for-profit co-operative organisation where all money is invested locally, keeping money circulating within the local economy.
People can join online at www.somersetsavingsandloans.org.uk and learn more about the loans, savings accounts and other credit union services. Or they can contact someone about their savings or borrowing needs on 01275 390649.
As a Credit Union Somerset Savings and Loans is regulated by the Financial Conduct Authority. All savings are also covered under FSCS – Financial Services Compensation Scheme up to £85,000 for any individual saver.
