4 strategies adopted from US for UK banks
Consumers may be relying more on short term payday loans.
09:20 22 April 2013
With a tighter economy we may see reductions in mortgage loans being given out to people. Many have blamed lenient lending practices for some economic troubles. US banks recently re-assessed their loan distribution and made changes in their lending practices to avoid lending so much to high-risk people.
If this is treated similarly in the UK, those of us who may need money quickly, or who have a lower credit rating, may not be able to obtain funds through normal avenues. It is possible that short term loans, such as payday loans, may be used more often. With recent changes to the payday loan industry, consumers can expect some differences in the process.
- Eligibility—payday loan companies will be analyzing customer’s financial information more thoroughly in order to prevent difficulties for those who wouldn’t be able to afford the sometimes steep repayments.
- Repayment options—recently, companies offering payday loans have vowed to improve the types of options available to customer who find themselves unable to make the payments on the loans.
- Competition—the OFT has encouraged payday loans to comply with the normal competitive approach that will keep interest rates a little more in check than they were previously.
- Better communication—consumers discovered that the terms of the loan repayments might have been unclear at times, or that the process of obtaining a short term loan was not easily understood. Companies that offer payday loans are attempting to make terms much easier to understand.
The US banks that have made the shift away from high-risk lending are showing improved financial results and there have been a number of them showing a successful fiscal quarter. In the meantime those of us who are in need of quick cash may still rely on payday loans to get us through some difficult time, but we can be assured that the experience will be significantly improved.