Since its inception in 2000, the payday lending industry has experienced dramatic changes. This article examines how the industry has changed over the past years.
The decline of high-cost credit
Over a period of only ten year, we have seen the rise and fall of the high-cost payday loans industry. In 2010, the UK was in recession and had to freeze public sector wages. The banks stopped lending as much. This led to troubleshooting businesses and other high-cost contract types.
This sector has experienced remarkable growth. In 2012, nearly 250,000 UK residents received short-term loans totaling over PS2.2 billion.
The industry was affected by many things. BridgePayday – Bridging Your Finances in a situation for emergency.
FCA Regulations Update
The crackdown by Financial Conduct Authority (the industry watchdog) is partly to blame for the decline in payday lending. In 2015, the FCA introduced stricter regulations to make the market more fair for customers.
New rules limit the number of payday loans that can be renewed. There are also stricter guidelines regarding financial health warnings and affordability checks. A 0.8% daily interest rate may apply to loans that have high-cost short term credit. These amounts would amount to no more than 80 pence per monthly for PS 100 and a default fee of PS 15.
The stricter reforms have had a significant impact on the sector. Lenders are leaving the sector due to this. Wonga QuickQuid, and The Money Shop, the UK’s largest payday lenders, were placed in administrative proceedings. Wonga was facing large payday loan payments from clients who had been misled into high-cost loans. This figure is expected to increase.
Increased Loan Repayments
Additionally, payday lender compensation claims have increased significantly in recent years due to increased customer awareness about mis-sold loans, partly due to the new FCA regulations of 2015.
Are you looking for alternative products?
The payday lending industry is expected to shrink further to just a few top companies. Alternative products could take over, however.
Lenders can offer long-term loans with a repayment term of 6, 12, or 24 months. Clients can make higher repayments and avoid payday loans by using this option.
Fintech startups and companies offer alternatives to traditional banks.
While traditional loans will remain a controversial concept for many years, startups like these are creating millions of dollars in venture capital and changing the face of payday lending.