Jun 14, 2013 Simon Williams
There are a number of people across the United Kingdom who are critical of the short term lending industry. They are largely concerned about the interest rates and individuals who don't understand the rules that go along with rolling over lines of credit and other terms.
However, many of these people publicly opposing the sector may not be aware that it was instrumental for a large volume of consumers during the recent fiscal troubles. When the global recession hit, it took a toll on many credit scores, thereby barring some individuals from obtaining short term loans.
As such, many people turned to lenders for relief and found success. But now, opposing factors are attempting to put a stop to that. Recently, some U.K. lawmakers have proposed restrictions on the way such companies can advertise to consumers.
Threatened with regulations
According to The Telegraph, former Chief Executive of the Banking Code Standards Board Seymour Fortescue said that short term lenders have to begin abiding by a number of industry guidelines or face mandatory restrictions. He explained that short term lenders will have approximately one year to change their advertising campaigns and other terms to follow the sector's best practices.
All potentially misleading advertisements have to be cleaned up and made precise, the news source explained. The newspaper used the Cash Lady marketing campaign an as example of what not to do. It focused on celebrity spokeswoman Kerry Katrona's well-publicized financial problems, and suggested that people in similar situations follow her advice.
"Government and regulators are fully committed to clamping down on irresponsible practices by short term lenders," noted Consumer Minister Jo Swinson.
As such, The Telegraph reported that government leaders set up a new Short Term Lending Compliance Board sponsored by the Consumer Finance Association. That said, the regulations created by the organization will only be mandatory for companies that choose to join, not the entire industry. Many small businesses will not be required to follow the developed rules, the source noted.
Students suggest restrictions
According to AOL Money, lawmakers aren't the only people trying to put bans on the way lenders can advertise. In fact, representatives at the National Union of Students, as well as those from the University of Northampton and Swansea and Northumbria Unversities have joined forces to make the sector more regulated, particularly when the products are used in a collegiate setting.
The news source said that uSwitch.com Personal Finance Expert Michael Ossei explained that many student organizations are wary of lending because some university attendees are unaware that they should use such loans on a short term basis only, not as a permanent means of funding. That said, a number factions are speaking out in favor of borrowing, saying that, when done correctly, short term loans can be an invaluable tool for those struggling.
Potential selling point
Even if there are restrictions placed on how short term lenders can advertise and who they can market to, there are definitely numerous factors they can rely on for promotion campaigns. The biggest selling point to this sector, however, may be the fact that increasingly, lenders are looking past traditional credit scores.
Many such companies are using alternative rankings during the approval process. For instance, the Payment Reporting Builds Credit (PRBC) scoring method is being used by many financial experts, which can be helpful to those who saw their scores suffer during the recession. PRBC scores are created by taking into account a positive history of making utilities payments as well as other factors. This, then, allows those with subprime or nonexistent scores to have access to lines of credit.