Payday Loan Industry Contracts as Watchdog Bites

Posted by Tom Magor in Banking on 9 November 2016 - Tom is a Senior Credit Analyst at checkmyfile.

In the wake of a crackdown from the Financial Conduct Authority (FCA), the payday lending industry has drastically contracted, represented by a near 70% reduction in overall lending. To draw upon Russell Hamblin-Boone of the Consumer Finance Association, a mere 1.8m short term loans were issued over the course of 2015, compared to 10m in 2012.

At its peak, there were nearly 250 short term lenders operating within the market. However, a considerable number have left the market entirely, with only 60 authorised firms remaining.

Lenders were forced to operate under stringent controls after tougher regulations were imposed in 2014 and 2015 to protect borrowers from unreasonable fees and compounding interest rates which adversely impacted the profitability of many such firms. In many cases, offering payday loans was no longer commercially viable.

The new rules mean that borrowers cannot incur costs which exceed a daily interest rate of 0.8% and the total amount of interest repayable cannot be greater than the amount of the initial loan. Furthermore, the maximum late payment fee that can be charged is £15 over the entire length of the loan. While such short term loans are still generally characterised by high interest rates, lenders have an obligation to ensure that customers can afford them and are treated fairly should they be faced with financial difficulties.

Mr Hamblin-Boone has also stressed that as opposed to the historical negative stereotypes, the timely repayment of such loans should have a positive influence on a customer’s credit files as it displays their ability to meet repayments as they fall due. He says, “What we need to look at to prevent financial exclusion is rewarding people with good borrowing behaviour regardless of the type of lending they choose.”

The point was also raised that consumers who obtain such short term finance options represent an array of backgrounds and socio-economic classes. The average annual income of a borrower is £25,500, only slightly lower than the UK average of £26,000. They are also more likely to be in full time employment than the population as a whole.

The FCA crackdown saw a number of high profile payday lenders faced with large fines and compensation demands. In 2014, Wonga were forced to pay in excess of £2.5m to around 45,000 customers surrounding misleading debt collection practices. In a similar fashion, CFO Lending, who traded under Payday First and Money Resolve, had to repay nearly £35m to nearly 100,000 consumers.

Check Your Multi-Agency Credit Report

30 Day Free Trial

How does an overdraft affect your Credit Report?

An overdraft can either be a financial lifeline, or something of a millstone. Which side of that fence you fall probably depends on how much of that usage is pre-planned.

Published on 5 Jul 2019 by Andrew Brown

Full Article

A Cautionary Tale About Switching Banks

Switching current account providers is incredibly easy these days – and I can vouch for that from recent personal experience. But experiencing the process first hand has also served as a reminder that it’s not completely flawless and that if you don’t pay attention, your Credit Rating could take a hit – even if it’s a temporary one.

Published on 19 Dec 2018 by Richard Catlin

Full Article

Your Credit Rating Vs A Country's: What's The Difference?

Professor Edward Altman first published the Altman Z-score formula in 1968 to evaluate the likelihood of a businesses going bust within two years. The legacy of this system lives on, with the fundamental basics of his score helping to shape the Credit Scoring systems we use today - whether that’s a simple application for car finance or assessing the economic strength of an entire nation.

Published on 13 Dec 2018 by Beth Jennings

Full Article

Final PPI claim deadline pushed back even further

Let’s be honest, we almost all know someone who has claimed for PPI. You may have even done it yourself. If you aren’t aware of anyone you know claiming for PPI, you would still know of its existence, as the adverts for claims firms seem to populate every TV channel and radio station with advertising space.

Published on 4 Jan 2017 by Ben Tumilty

Full Article

Banks not going far enough to combat fraud

Banks have been warned that they must start to do more to tackle scams where people are tricked into transferring money to a fraudster’s account. The Payment Systems Regulator (PSR) has stated this in a response to a “super complaint” lodged by the consumer group Which? but the Regulator did stop short of suggesting that the banks should compensate customers who had lost out.

Published on 21 Dec 2016 by Erika Bone

Full Article

Lloyds Acquire MBNA in £1.9bn Deal

Signalling a return to strength and in the organisation’s first acquisition since the 2008 global financial crisis when they purchased HBOS, Lloyds Bank is to buy credit card firm MBNA from Bank of America in a £1.9bn deal.

Published on 20 Dec 2016 by Tom Magor

Full Article

Mortgages through your mobile

Mobile bank provider Atom are launching the UK’s first mobile mortgage app. Applications for a mortgage often involve mountains of paperwork and Atom’s mortgage app is designed at reducing the volume of paperwork that applicants have to gather when applying for a mortgage.

Published on 8 Dec 2016 by Ben Ryland

Full Article

Compensation Scheme Limit Increases Due to Financial Uncertainty

The compensation limit for consumers who would lose out financially in the event of their bank collapsing has been increased back up to £85,000, which is where it was in July 2015.

Published on 23 Nov 2016 by Kevin Pearce

Full Article

Further Job cuts and Branch closures at Lloyds

The Lloyds Banking Groups is set to cut a further 665 jobs and close a further 49 branches as part of its continuing drive to cut costs.

Published on 14 Nov 2016 by Neil Greenhill

Full Article

Bank of England indicates massive increase in inflation for 2017

The Bank of England has reassessed its 2017 inflation forecast in the wake of Brexit and increased its prediction to triple the current rate of inflation. The UK’s central bank now expects the rate of inflation to reach 2.7% next year, whereas the current level stands at 1%.

Published on 7 Nov 2016 by Neil Greenhill

Full Article
keyboard_arrow_left

keyboard_arrow_right

We are rated number 1 for customer service on