News & Resources

Confusing lenders left and right

Dec 05, 2013 Simon Williams

Sometimes, when national lawmakers draft new rules to be implemented within an industry, this can help people within the sector better understand what they should and should not do. That is, after all, the point of crafting legislation - it acts as a guideline for industry players and consumers alike. But what if the instruction provided seems misleading or flies directly in the face of former guidance?

This may present a very confusing situation for everyone involved, and can leave national leaders looking like they have a bit of egg on their faces. Which guidance should businesses follow - the rules that have been in place for some time or the newest suggestions? Moreover, it can be doubly baffling when the two requests or statements made by administrators are the exact opposite.

That's the case within the short term lending industry now. While previously, British leaders have said that imposing an interest cap wouldn't be helpful to anyone involved, the Chancellor of the Exchequer, George Osborne, recently stated that the government will introduce a rate limit in the near future. While of course lenders will follow the law, the situation is exceedingly confusing and deserves an explanation.

The opposing statements
Reuters reported that Osborne has released statements explaining that his office intends to limit a number of charges that lenders have to tack onto loans, otherwise they'll make little to no profit themselves and won't be able to contend with overhead fees or payroll. In fact, the news source said he plans on placing a number of restrictions, from the interest rate to penalty fees - which are usually significantly less than what consumers would pay in late or overdraft charges.

That being said, the source explained that in October, representatives from the Financial Conduct Authority explained that that organization considered pricing caps on short term loans, but found that it was a "very intrusive proposition" and could dissuade people from borrowing altogether.

"The government is today admitting it got it wrong in opposing these measures," the Labour party's business spokeswoman, Stella Creasy​, told Reuters.

Lenders aren't the only ones with questions
According to The Guardian, those employed within the lending sector aren't the only individuals who are confused about this scenario. Labour party leader Ed Miliband recently asked Prime Minister David Cameron why he's making a complete 180-degree turn on previous statements.

The source explained that Miliband has taken his confusion to the House of Commons, telling the body that Cameron seems to have suffered "an intellectual collapse" on the matter. Moreover, he suggested that Cameron only did so to appear favourable in a vote that week. This quickly escalated into a debate between the two national leaders, The Guardian reported.

"This is not a minor policy adjustment, it is an intellectual collapse of the government's position because for two months you have been saying that if you take action to intervene in markets then it is back to the seventies, it's Marxism," Miliband said to Cameron during the gathering, the newspaper detailed.

While short term lending leaders can petition to their representatives and attempt to instill change themselves, there is not much professionals can do besides watch as the developments emerge and attempt to make sense of the seemingly contradictory situation currently occurring.