Major changes are expected for British payday lenders, pawn brokers and credit reference agencies in the future. Not only is the government agency that oversees the different agencies shifting, but new regulators have expressed interest in increased scrutiny with their new position.
An article in the Guardian this week explained that starting in 2014, the consumer credit market, which is currently regulated by the Office of Fair Trading, will be the responsibility of the Financial Conduct Authority (FCA), a new agency that is replacing the Financial Services Authority next month. As if those aren't enough changes, the future chief executive of the FCA, Martin Wheatley, told the news source the agency would have a "much more active supervision approach" on the industry.
In its new role, the FCA will be able to impose unlimited fines, shut down lending firms that are not complying, and even compensate those that may have lost funds from illegal practices. The agency will also be able to cap interest rates of payday lenders as well as the number of times a loan can be "rolled over," with the intention of keeping borrowers from falling into too much debt if unable to pay back a loan. Currently, there are about 50,000 companies in the lending industry.
For UK lenders, investing in risk management tools to ensure that lending practices are both legal and profitable may become even more important once the FCA begins looking into lending firms. With a cap on interest rates and rollover times, lenders will likely need extra tools to make up for lost profits that may result from these changes in responsibility. But even for those that aren't affected, investing in credit application software to find qualified borrowers can help any lender avoid these legal issues.