US government to regulate bad credit loans through the FCA

For years, aggregators of online lending have anchored on the lack of regulation as a basis for the declaration of some bad credit lenders as illegal. However, with the continued and unstoppable popularity of bad credit loans, as well as defective lobbying of lenders, the government has decided to create the financial conduct authority.

Bad Credit Loans and the Financial Conduct Authority

The Financial Credit Authority (FCA) is a government sector that will be set up orderly in 2014. One set up, those providing bad credit loan services will see their cash under the Financial Services Compensation Scheme. The same authority will also be given the task of making sure that all nontraditional lenders play by the rules. Otherwise, uncooperative lenders will face the possibility of being shut down.

Lenders are quite happy with a resolution. They commend the government for taking the steps necessary for the recognition of the importance of nontraditional lending services for the consumers. They also add that the existence of the Financial Credit Authority is a sign that the government understands the potential of online lenders in rivaling the mainstream financial services offered by banks.

In addition, the action acknowledge the contribution of the bad credit loans industry to the U.S. economy. It must be remembered that as of 2009, the percentage of bad credit loans is almost 40% of the total revenue from loans. This percentage is expected to go up to as much as 65% by 2016. So in a way, the government is already preparing for the booming of this industry.

Functions of the Financial Conduct Authority

As mentioned, the Financial Conduct Authority will ensure that regulated lending firms will conduct their operations in the right man. The FCA will also offer protection to consumers. For consumers, this is excellent news as there have obviously been a widespread distrust to such services, and this is because of the lack of a regulating body.

The functions of the FCA will not include the licensing of lenders providing bad credit loans and other similar services online. This is to make sure that it will not overlap the sat functions of the state. As of today, states are responsible for licensing operators of bad credit loans. This decentralization of the licensing function is the reason why they are still some states today that have not legalized online.

Yet one of the most important functions of the Financial Conduct Authority is that it is set to promote competition among lenders. Competition is believed to be the only factor that will effectively drive the interest rates down. With the FCA, more lenders offering bad credit loans and others similar services online will be enticed into the market.

The long-term goal of the Financial Conduct Authority is to institutionalize the industry of short term lending online. This means that they will become subject to the same laws that govern the traditional bank institutions. If this happens, most of its current rules and guidelines will become universal, particularly when it comes to the interest capping.

But more importantly, the fact that the FCA is set to be created and made functional within this year or early next year only means that consumers have less to be afraid of. Bad publicity will likely stop and it will be easier for potential users to find a legitimate bad credit loans lender online. If this happens, the struggle of nontraditional lenders to be recognized by the government will finally end.