As of January 1st 2015, caps on payday lending were introduced across the UK in an effort to stem the tide on the snowballing debt problems faced by many people throughout the country. The new set of rules have been designed to protect those who have used – and in some case become reliant on – the countless numbers of payday lending companies that are now ever-present within our society, but for people in Scotland there are still many question marks still hanging over the people in vulnerable financial positions.
Scotland, however, is hit worse than the rest of the UK and in light of this there are calls for more evasive courses of action in order to overcome these problems. Mike O’Connor, chief executive of StepChange, has said “Scotland has suffered more from the rise in payday loans than other parts of the UK. New rules for payday loans are a welcome start to 2015.
“They will help address problems within the payday loan industry which have made bad situations worse for thousands of people. We want to see a mandatory real-time database for payday lenders to share information, limiting the risks of unaffordable multiple borrowing.”
But what does the cap actually mean for borrowers? Fees and daily charges are limited to 0.8 per cent of the loan amount, and default charges have been left capped at £15. Fees and interest will never account for more than the initial loan value, with the 100 per cent total cost cap also coming into full effect. While extremely useful for those borrowing small amounts, for those that have debts that run into the thousands it may act as only small consolation.
Although in theory, putting a cap on these short-term loan companies can only be a good thing. People can only find themselves accumulating a certain amount of debt, and the worst practices within the cut throat market of payday loans left consigned to the past. But without widespread action on personal debt, with the root problem – the debt itself – still prevalent within society in Scotland, this cap may well prove to be a drop in the ocean of financial issues.
The regulations have all been taken over by the Financial Control Authority (FCA), which may offer some hope for people wanting further reform within the sector, but ultimately these changes take a while to be passed legally. It is the smaller changes that ultimately may have a bigger effect in the long run – for example, free debt advice is now a mandatory requirement for those in difficulty, something that can only be beneficial for all parties involved.
While increased spotlight from the media has led to increased scrutiny from authorities, it would be naïve for us to believe debt problems and injustice begin and end with the underhand tactics employed by payday lending companies. With numerous other deregulated avenues for people to pursue when in need of a quick financial fix – not all of them legal – payday loans may soon be seen as the ‘safe option’ when it comes to borrowing. Letting the cap lull us into a false sense of security regarding short term loans, in reality, is equally as damaging as doing nothing about it at all.
Here at Trust Deed Scotland, we are firm believers in tackling your debt problems head on as soon as possible. By fixing yourself into a protected trust deed plan, you provide yourself with a much greater opportunity to get out of the red and into the black in the most amicable way possible. We take care of communications with your creditors and provide you with the structure and guidance that is absolutely integral to financial recovery.
Trust Deeds are an extremely real pathway out of debt. For more information on the services we offer, or how to apply for a personalised trust deed from Trust Deed Scotland, contact one of our team immediately.