What is the Financial Conduct Authority?

Looking for payday loans, and wondering what does FCA stand for? This is an acronym for the Financial Conduct Authority, the governing body that makes sure that UK lenders follow new rules that make loans safer for you.

If you want to know more about how the FCA protects consumers borrowing short-term credit, here's our guide to the role that the FCA plays in the payday loans industry. We’ll answer commonly asked questions such as ‘what is the FCA?’, ‘What does the FCA do?’ and ‘Why was the FCA formed?’.

What is the FCA?

The Financial Conduct Authority is the organisation that regulates the conduct of nearly 60,000 financial services firms in the UK to ensure that the entire industry works well for consumers, businesses, and the economy.

The FCA was set up in April 2013, taking over from the Financial Services Authority. The FCA says that it plays a vital role in making sure the UK retains its reputation as a 'global financial hub.'

How is the FCA funded?

The FCA is funded through the charges it applies to the firms on which it imposes FCA regulations.

What does the FCA do?

Not only does the FCA play an important role in protecting the reputation of the financial market and financial services industry in the UK, but it also works to uphold the values of competition within these industries to help consumers access the very best products without being ripped off.

How does the FCA regulate UK payday lenders?

The FCA changed the way payday loans were handled. Thankfully, the new regulations had a huge impact and there is now real choice for consumers who want to take out a payday loan with a responsible online lender in the UK.

What are the interest and price caps applied to quick loan UK lenders?

The FCA decided to take an in-depth look into the market and the problems that people who were taking out these loans were having before they introduced their new price cap and regulations. FCA officials looked at the credit records belonging to over 4.6 million people to find out what people did if they were turned down for payday loans.

They also analysed several payday loan lenders and millions of loans to find out what affect the price cap would have on the industry and they also talked to regulatory bodies that had introduced similar caps in other countries. This all painted a clear picture for the FCA, allowing them to introduce a balanced set of regulations, limits and caps that work for everyone.

The changes the FCA brought in came into force from 2015 and formed a three-pronged strategy on removing payday loan scams, unfair fees and high interest charges.

Strategy to remove payday loan scams:

1. The FCA limited the interest rates charged to a maximum of 0.8 per cent of the value of the loan per day.

2. They then implemented a rule that limited the penalties applied for non-payment to £15.

3. Finally, the FCA applied a cap of 100 per cent of loan value to the cost of all charges and fees to protect consumers from ever having to pay more than double what they borrowed, whatever their circumstances.

What impact have the FCA regulations had on UK payday lenders?

The FCA’s measures go a very long way to ensure that the payday loans industry now works for consumers, offering them a useful service in the form of affordable loans that meet a genuine demand. FCA-regulated UK lenders and fintech firms now want to increase their exposure to borrowers who can afford the terms of the loan and will not default.

Can the FCA help me to find the best payday loans UK lenders have to offer?

Yes, the interest price cap and limits the FCA has brought in have meant the end for several of the payday lenders who were operating irresponsibly. Therefore, by checking that your latest lender is FCA-authorised and regulated, you can minimise the risk of taking out a loan with a poor-quality lender.

What is a responsible lender?

In order to be officially classed as a responsible lender, you need to meet certain :

'Applicants have to meet a range of requirements for registration before we allow them to operate in the market. We review their business plans, risks, budgets, resources, systems, controls and whether key staff have the necessary qualifications, experience and ability to carry out their roles effectively. They must meet these requirements before we will authorise or register them.'

There are many other rules set out by the FCA that must be followed in order for a provider of loans or a fintech to be classed as a responsible lender. These regulations are based around lending to people using guarantors and those borrowing in pairs or for small business purposes, for example.

What are unregulated loans?

Unregulated loans are loans which are not protected by the FCA. This means that in the event of something going wrong, you’ll have less protection.

How does this affect me as a borrower?

The overall impact on borrowers of the FCA price cap and regulations has been overwhelmingly positive. Although a percentage of consumers able to access payday loans has fallen because of the new regulations, those who do not qualify under new criteria should not be taking out short-term loans for their own financial wellbeing.

As well as better affordability and credit checks, lenders are now offering more flexible repayment options, such as Instalment loans, which can be repaid over the course of a few months, rather than in a single lump sum on the borrower's next payday. This can help relieve the pressure on consumers and allow them to spread the cost of a loan, removing some of the pressures that payday loans previously created.

Here at Moneyboat, we welcome the new fairer world of short-term lending and pride ourselves on our responsible lending credentials. While you’re here, why not head over to our guide on everything you need to know about payday loan criteria?