Payday loans and the payday lending industry in general has been at the centre of a lot of controversy of late, with many concerned about the crippling charges coupled with the lack of adequate checks linked to payday loans and lenders. Many borrowers have found themselves in a situation where they have spiralling debts that they quickly lose control of as a result of taking out these payday loans.
It has now been reported that payday lenders have agreed to new commitments that have been designed to help struggling customers to avoid building up spiralling and unmanageable debts. If borrowers are experiencing financial difficulties and fall behind with repayments as a result of this, payday lenders will now freeze interest and charges no later than sixty days after the borrower stops making payments. Charges will also be frozen as soon as customers are able to reach an agreeable repayment plan on their outstanding balance with the lender.
The government has been informed by trade officials that the new measures will be put into place by 25th July this year. In addition to agreeing to these measures in relation to interest and charges for struggling borrowers, payday lenders have also promised to make proper, more thorough checks with regards to affordability, which could reduce the number of people taking out loans when they cannot realistically afford to repay them.
Business Minister Norman Lamb said that payday loans were designed to be used only as a short term financial stop gap and not as a long term solution to credit and finance needs. He urged consumers to think more carefully before opting for one of these short term loans and suggested that they look at more affordable options such as using a credit union.
The commitments have been made by trade associations that collectively represent around 90% of the payday lenders across the UK. Some of the member lenders are already offering similar measures to safeguard borrowers. A spokesperson for the trade associations said that the new measures and commitments would go much further in terms of safeguarding consumers than current statutory regulation.
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