New FCA rules that would have only applied to Payday Lenders now apply to almost 90% of the short term & medium term lending market.
London (PRWEB UK) 10 June 2014
The expression payday loans originated in the United States where salary payment patterns differ from the UK market. In the US a number of lending businesses developed out of specifically targeting customers who needed a short term loan to cover a cash shortfall till payday. This meant that the entire business model was based around the borrowers ‘payday’ and the loan was often collected back on the borrowers next payday irrespective of how long they actually needed a loan for.
A number of US lenders then crossed the Atlantic to offer the same product in the UK. However short term loans were already operating in the UK where the loan could be paid back at any time in a thirty day period: not just on the very next payday.
In the current payday lender bashing media frenzy surrounding the industry, British lenders believe the US business model has muddied the waters and that the media has simply jumped on the bandwagon of mistakenly labeling all short term lenders as ‘payday’ lenders issuing loans for bad credit. This clearly is wrong and does not give credit to the diverse and flexible consumer lending industry that has developed in the UK market since the advent of credit cards to cover ‘all’ short term cash needs: not just ones for payday.
Indeed the newly formed Financial Conduct Authority has caused even more confusion by labeling ‘all’ credit that is extended up to 12 months at an APR of over 60% as being ‘high cost short term credit’. That means that the same rules that would have only applied to Payday lenders now apply to almost 90% of the short term and medium term lending market.
Many lenders believe the lack of clearer definitions by bundling everyone together is very much in the same vein as the nonsensical rules surrounding the formula for calculating APR. Both the Financial Conduct Authority and the Government have refused to change the definition of APR while both accept that the current calculation formula does not make any sense when applied to a short term loan. Many observers believe that by keeping the APR definition as it is, confusion reigns and the collective media "pile on" of short term lenders will continue because it is a case of the blind leading the blind, leading a political witch hunt. Who ever said ‘ignorance is bliss’?
TechKredit is a leading short and medium term lender in the UK, authorised by the FCA.