Extra Regulation Could Damage Loan Market
The Government and the Financial Services Authority (FSA) have recently announced that extra regulation will be introduced within the loan industry, particularly in the home owner loan, mortgage and secured loan markets, following the Mortgage Market Review (MMR) lat year.
Whilst this new regulation is intended to offer additional protection to borrowers and avoid the problems of irresponsible lending, which lead to many people in the past few years not being able to afford their loan repayments and build up loan arrears or even face repossession, many loan industry experts have warned that more regulation could have a negative impact on the loan industry as a whole.
The Finance and Leasing Association (FLA) have warned that additional regulation on loans could lead to increased costs for lenders and therefore people taking out a new loan, as well as having the potential to restrict the loan market even further than it already is.
The FLA believes that tighter regulation on the loans industry could make it even harder for potential borrowers to obtain the loan they require, due to availability and affordability problems.
If potential borrowers are unable to get the loan they want from traditional sources, such as banks or building societies, the worry is that they will turn to alternative sources of funding, such as expensive doorstep lenders or even illegal loan sharks.
The FLA figures show that the number of new loans granted in April this year, was already 9 per cent lower than it was at the same time last year and further regulation could restrict this even further.
Stephen Sklaroff of the FLA said “If we are to avoid the serious social and economic consequences of a smaller, more polarised consumer credit market, a proper balance needs to be struck between consumer protection and maintaining a competitive market.”
