Payday lenders have been receiving a lot of negative press lately for mistakes made by a select few companies. In an attempt to fight off this bad reputation, a charter has been drafted by four major trade bodies in the payday lending industry; the Finance & Leasing Association, Consumer Finance Association, British Cheque & Credit Association and the Consumer Credit Trade Association.
The charter entitled the Good Practice Charter & Addendum was created for the purpose of making the payday loan process more transparent as well as helping borrowers who are finding it difficult repaying their debt.
The biggest victory concerning this new set of guidelines is the policies to be implemented for borrowers who are unable to repay their loans. Before, customers who could not repay their loans in the agreed upon time were hit with sky-high interest rates, late fees and charges, burdened with even more debt. With the new charter, struggling borrowers will have their interest and fees placed on hold if they go sixty days without making a payment or if they are on a repayment plan.
Another big improvement to be employed under the new charter is that applicants will be assessed with a financial evaluation before they are approved for short-term loans. Lenders will consider whether applicants will be able to repay the amount they are seeking within a reasonable time frame. This improvement follows many complaints claiming that payday lenders lead customers to believe that they would comfortably be able to repay their loans and some even allege that they were convinced to take out loans after declaring their hesitation.
As part of the new agreement, lenders will clearly explain the process of payday loans including fees, charges and the repercussions users could face if they do not repay the loan in the time period agreed upon when the loan was taken out.
Other practices lenders are to follow under the new customer charter:
- Reminding applicants that payday loans should be used as a short-term financial aid, not for long-term borrowing
- Tell the applicant what information is considered when making decisions on the loans
- Clear explanation of how communication will take place during the term of the loan along with providing contact information
- No pressuring customers into taking out a loan
- Tell applicants about free and independent debt-counselling organisations who can help during times of financial difficulty
- Explaining to customers about the complaints-handling procedures
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