Jul 25, 2013 Simon Williams
Since the onset of the global recession, consumers in the United Kingdom have had to go to great lengths to secure funding, something that hasn't dwindled although the economy is slowly but surely picking back up. Though citizens are much more secure in their finances as compared to a few years ago, many banks and traditional lenders are still wary to extend loans.
As such, short term lenders have been exceedingly popular in the last six years or so.
However, British authorities are now implementing more stringent laws to regulate the industry. While this shouldn't impact the firms that are following the rules, administrators should be aware of the situation. Recently, a number of alternative lenders were forced to shut their doors after being investigated by lawmakers.
OFT causes major shifts for 11 lenders
According to The Guardian, since leaders at the Office of Fair Trading (OFT) began looking into the sector more vehemently at the beginning of 2013, 11 short term lenders have had to drastically change their business models as a direct result. Moreover, 22 companies still have to answer to the organization regarding alleged shoddy practices and show they are remaining compliant.
The news source said that in March, the OFT told the largest British short term lenders that it was going to delve deeper into industry practices after a slew of complaints about the sector as a whole arose. The request to prove compliance to laws has been answered by 28 companies out of the 50 notified - eight stopped offering short term loans, and two closed their doors altogether.
The Daily Mail noted that the 50 companies contacted by the OFT represent about 90 percent of the industry in the U.K. Among the complaints listed include using aggressive debt collection tactics, being insensitive, failing to analyze applications and not explaining how customers will pay back the amounts borrowed.
Moreover, the newspaper reported that the organization has taken a special interest in three particular lending enterprises that might have taken short cuts, though they were not identified. Thus far, the OFT has revoked the licenses of three businesses altogether.
On top of these new developments, the OFT recently informed that Competition Commission that it would be taking a bigger role in regulating the lending industry, The Daily Mail explained. Plus, the means of advertising for these financial tools is also under review by various governing bodies.
Short term lenders in the U.K. have to ensure they stay on the straight and narrow now to make sure they don't come under fire. One of the best ways administrators can do this is to teach all workers the rules they have to abide by from day one during training.
Despite the fact that this might seem like a set back, the reality is that British consumers are going to continue to need alternative finance options and financial leaders in the country know this. The economy hasn't rebounded completely since the recession, and these sorts of lenders are just as popular and profitable as they were in the thick of the fiscal troubles.
This means that short term lending companies that are complying and remain in operation are still going to see a lot of business - perhaps even more so now that competition is dwindling. Leaders at these firms should make it clear that they offer a unique service: Loans without using traditional consumers credit scores, something that will likely be attractive to many U.K. citizens in the wake of the recession.