Law & Regulation

As with most of our important pages this one is split into three sections. The first section is designed to give you the fast facts about the laws and regulations that surround payday loan. The second section is designed to give you a much more in depth understanding of the relevant laws and regulations. Finally the third section is where we put all of our in depth articles on the topic. If you find our information helpful please feel free to share it on social media etc.

A Quick guide

Laws and regulations are set in place so that everyone, whether they are involved in the subject or not, can fully understand what is legal and what is not. You may know the laws governing mortgages, credit cards and pension planning, but if it’s a payday loan that you are interested in, you’ll want to get to grips with knowing how the regulations impact on a person taking out a loan, both from the lender and the individual’s point of view.

We come to rely on government to regulate everything that happens in the finance industry. This section is designed to bring together all of the regulators, trade associations and other related organisations that play a part in the market.

  • Which government based authorities are involved?
  • Who manages the payday lenders?
  • Which trade Associations are involved?
  • How does UK legislation compare to other countries?
  • What do the future trends for payday loans look like?

Let’s begin by seeing who is involved, what they do and how the general public and businesses should benefit.

A Not so quick guide

Which laws govern payday loans? To appreciate which laws govern payday loans in the UK, you have to understand that, apart from the individual taking out a loan, there will be a lender involved, possibly a broker and also debt collectors who may have to collect the debt from the individual. You will also have to consider the data that is involved and how it is regulated.

Government based authorities involved in payday loans

The Financial Conduct Authority - FCA - logo

The Financial Conduct Authority (FCA)

The FCA manages the regulation of payday loans across the UK, having replaced the Office of Fair Trading as the financial regulators on behalf of the government. The Office of Fair Trading, no longer exists. The FCA’s goal is to help consumers use financial services with confidence. They also oversee the need for products that meets consumer’s general needs, while showing that businesses and individuals can be trusted.

They regulate both firms and financial advisers to ensure that financial systems and markets remain sound, stable and resilient. They consistently encourage transparent pricing so that consumers can easily understand the products and how they work.

Their statutory objectives were originally set by the Financial Services and Markets Act 2000, which were later amended by the Financial Services Act 2012.

The FCA has three operational objectives, quoted directly from their website;

  • To secure an appropriate degree of protection for consumers
  • To protect and enhance the integrity of the UK financial system
  • To promote effective competition in the interests of consumers

Their day-to-day activities include; Regulating, Protect, Championing, Enforcing, Promoting competition.

They are managed by a large board of experienced professionals and oversee the committees which cover auditing, risk assessment, remuneration, oversight and regulatory decisions.

The FCA is your first point of call if you wish to make a complaint and claim compensation, after you have failed to achieve success with the appropriate payday loan lender.

There are able to inform about the current status of any lender being authorised or unauthorised and their website is extremely useful as a source of information, particularly if you believe you have been scammed in relation to any financial services.

First line of help when you have problems with your payday loan lender: Where you wish to seek help after problems with your payday lender, this article can help steer you in the right direction and much of that will involve speaking to your lender first, after you have clarified how you stand legally, with the government’s regulator, the FCA

The Data Protection Act, 1988, governs the information that is held about you and passed between organisations externally or internally within a business. All data held in connection with a payday loan is protected under the Data Protection Act.

Where you know or believe that your data may have been misused, you should first complain to the organisation direct. Where you are unsuccessful in getting the response necessary, you can refer your complaint to the Information Commissioner’s Office.

Information Commissioner’s Office - ICO - logo

Information Commissioner’s Office (ICO)

This independent authority was set up to uphold all information rights that are in the public interest, to promote openness in public bodies and to clarify data privacy for individuals.

Should you feel that you need to find out more concerning the information held about you, this is the organisation to contact.

The ICO can be your first point of call if you wish to comment and find out how to deal with nuisance calls, spam text messages, discuss credit reference agencies (which are not usually used during the application process for a payday loan), as well as your online safety, how cookies work and protecting your personal data with cloud computing.

The Freedom of Information Act 2000 - icon

The Freedom of Information Act 2000

Although not directly linked to payday loans, the Freedom of Information Act was set up so that the general public could gain information held by public authorities.

As this covers the NHS, government departments and local authorities, you may need help from the Information Commissioner’s Office to access certain information in connection with payday loan lenders.

The Privacy and Electronic Communications - icon

The Privacy and Electronic Communications (EC Directive) Regulations 2003

These regulations govern the sending of electronic marketing messages, which can mean by the use of the telephone, emails or text messages, sent to the public by an organisation. This area also covers automating calling systems, used by payday loan lenders and debt collection agencies.

The Telephone Preference Service - TPS - Logo

The Telephone Preference Service (TPS)

This free service can help you to record your preference not to receive unsolicited marketing or sales calls. As a member of the public, you should be aware that you may have given permission to your payday lender to be able to contact you easily, when you signed to accept the terms and conditions during the application stage. Your lender will expect to be able to telephone you and discuss relevant matters relating to your account.

The Advertising Standards Authority - ASA - Logo

The Advertising Standards Authority

This is a self regulated organisation which is not funded by the British government, but through a levy on the advertising industry.

They regulate the print media, broadcast media, direct marketing, the Internet and sales promotions such as buy one get one free offers, loyalty reward schemes, along with scratch cards, lotteries and prize draws.

They closely monitor the payday loan marketplace and any advertising related to all media.


Which payday loan trade associations exist?

Trade Associations are organizations where members are involved with a similar or linked business or trade. The associations work in several ways:

  1. The members are governed by rules issued by the association, but which are often designed by the members for the benefit of all members and to protect consumers
  2. Consumers have an addition line of communication for solving any problems with members of an Association: the Association may have rules to enforce decisions upon its members and exclude them from membership
  3. Trade Associations use public relations to extend the benefits of an association, aimed for consumers’ education and knowledge
  4. They provide a standardisation among members for rules and regulations

Where a significant number of members join a Trade Association, they can band together to influence the industry. Unfortunately, some Trade Associations are just a front for one or two companies and are not working as a traditional Trade Association to benefit both the member and the consumer, but solely the member.

Some campaigners against Associations suggest that they exist to price-fix their market place. This does not appear to be the actions of the payday loan market place, to date, as it appears to be demand driven with regulation and capped limits, from the government regulator (FCA)

The BCCA was formed in 1994 as a trade association, known better then, as the British Cheque Cashers Association, and has developed over the years to encompass members involved with third-party check-cashing, payday loans, instalment loans, guarantor loans and credit brokerage. Their members operate on the high street, online or both.

They do not envelop all of the lenders involved with payday loans across the UK, but do provide 20 years experience to the 90+ membership.

The Consumer Finance Association - CFA - Logo

The Consumer Finance Association (CFA)

All members of the CFA that deal with payday loans adhere with the industry codes of practice and the customer charter.

They claim to be the principal trade association that represents short-term lending businesses across the UK. They fully support the trend that there should be no hidden fees within the cost, or in the cost of a default.

The Finance and Leasing Association - FLA - Logo

The Finance and Leasing Association (FLA)

The Finance and Leasing Association is essentially a trade body for asset, consumer and motor finance sectors, for the UK. It would appear to have just one payday loan member; Wonga Group Limited.

Formed in 1992 as a merger between the Equipment Leasing Association and the Finance Houses Association, members include banks, building societies, the finance department of many retailers and manufacturing companies, as well as independent businesses.

The Consumer Credit Trade Association - CCTA - Logo

The Consumer Credit Trade Association (CCTA)

The CCTA were established in 1891 and with members that provide consumer credit to the general public.

They provide a legal advice helpline and a focus for complaints and conciliation, where the consumer has been unsuccessful, dealing direct with the payday lender.

the not for profit organisation which provides free and unbiased information on debt management and other financial products, reports to keep consumers informed with updates and news from the financial industries; monitors consumer complaints and industry trends and offers free advice direct to consumers.


How the UK and other country’s payday loans differ

UK: Unsurprisingly, countries around the world take differing views on how they regulate payday loans. Nevertheless, it is clear that there is a strong marketplace for payday loans in the majority of the major nations.

Payday loans were virtually unheard of in the UK just five years ago, but were already in regular use in the United States. This may be a coincidence or match the fact that the recession started in the US, before it reached the UK.

In the UK, as in the US, there is not currently an interest rate cap for payday loan lenders. Although this is under revision, there is also no UK limit to the rollover of loans from one payday lender into another loan.

Australia: Australian states, Victoria and New South Wales have installed a 48% interest rate on payday loans. The state of Queensland, is considering an interest rate, although the current interest rates are generally far lower than comparable short-term loans across the UK.

Japan: Interest rates are capped at 20%, for payday loans in Japan, which has led to this short-term financing to become extremely popular and encouraged a reduction in loan sharks because people are better able to consider their own financial management.

USA: Legislation for payday loans varies considerably between the different states in the US. Some jurisdictions limit the annual percentage rate (APR) that lenders can charge.

Some states have very few restrictions placed on payday lenders, while others (13 states) refuse to allow any payday loan lending, whatsoever.

Payday loans are no longer a growing industry in the United States. There is a fastidious federal law which creates a maximum interest rate of 36%, specifically for military personnel.

New York and New Jersey are two of the states that have ensured that payday loans remain illegal.

Canada: Each individual province governs the local legislation. British Columbia and Saskatchewan have already imposed more specific regulations which includes interest rates and rollover of loans.

Future Trends

While it is impossible to predict definite future trends for payday loans, the practices of some lenders charging high interest rates and acting unprofessionally when collecting debts will certainly change as legislation seeks to end harassment of individuals.

While it may appear that less people are using payday loans in the US, the UK market continues to increase, particularly as the main high street banks still refuse to lend money to various sectors of the consumer market (the lower paid and those with irregular employment records).

After many complaints about payday loan advertising, it is expected that lender’s advertising standards will increase and cause less confusion.

With many individuals reaching the maximum of their credit card limits, more will turn to payday loans to ease their cash flow problems in the short term, but this will inevitably lead to further cash flow problems in the future.

Caps on interest rates, fees and charges will limit the rate that lenders can charge, and this might encourage illegal loan shark lending to flourish further as payday lenders will become more cautious about who they lend to.

Governments will continue to monitor the payday lending sector very carefully to try and reduce the numbers of illegal money lenders and the social problems related to debt problems for individuals.


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Taking a Closer Look

The above articles should have helped give you a very clear overview of what laws and regulations govern the payday loans sector as a whole. This section of the site has the goal of focusing on individual topics that relate to laws and regulations and then in detail taking a critical look at them. We hope you find them revealing and informative.

The following report is a quick summary of the BCCA Consumer Code of Practice. We have summarized the golden nuggets to save you some time and keep you informed. If you would like to read the full report please feel free to download it using the link in the top right of this summary. (Recommended if you have credit issues)

Click to read the full article

There are many aspects of the 1st April, 2014, (effective 1st July, 2014) updated legislation, that are designed to help the consumer, but some ‘help’ has resulted in other potential problems.

The overall intention is to help you – the consumer – understand more about your obligations to clear your debt and to stop you falling into continuous problems with that one loan.

Click to read the full article

The FLA trade association confirms that its members provided almost £90 billion of new finance in 2013, but it would be misleading to regard this as payday loan business, as only one member, Wonga Group Limited, conducts business in this area.

While the FLA members include banks, building societies, manufacturing companies, the finance arms of leading retailers and some independent businesses; its membership is not a major source of payday loan lenders.

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As one of the earliest trade associations recorded in history, they have been in operation since 1891, but obviously payday loans only become part of their members’ products and services, within the last few years.

Their website mentions their lobbying activities strenuously where they aim to take the weight off changes in legislation on behalf of their members.

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“Responsible lenders don’t lend to those unable to pay back ,” is how the Consumer Finance Association website opens on their homepage. They also suggest that you “should pause and think before you borrow” and “is a short-term loan right for you?”

These sentiments are exactly what the consumer wants to hear when they are considering a payday loan. This gives them encouragement that members of the CFA will abide by these sensible overriding objectives.

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The British Cheque Cashers Association, formed in 1994; acts as a trade association for financial services firms who list their trade as one or more of; Payday loans, Instalment loans, Guarantor loans, Credit brokerage, Third-party cheque cashers.

Although they were originally developed as a Cheque Cashers Association, they now list payday loans ahead of their other activities.

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Data Protection Reg No: Z3508710 - Consumer Credit License Number: 655622