The credit crunch saw a boom for payday lenders as more and more started popping up. People who previously had been unable to get loans, credit cards and a steady supply of credit were now finding these avenues cut off and in their need for short term cash were turning to more expensive alternatives. With more than 400 payday lenders now operating in the UK the FCA have introduced tough new measures to reign in the high interest rates and spiralling debt issues. Already many lenders have handed back in their credit licenses and shut up shop as these regulations prove too much for some.
Some of the young blood lenders in the payday marketplace (Wizzcash being a notable standout) have embraced these regulations, tackled them head on and taken steps to ensure they survive the crackdown. Not such a bright future for firms including the Cheque Centre, Cash & Cheque Express, Cash Genie and Speedy Dosh who are amongst those exiting the industry. In fact the numbers of payday loan shops has dropped from 1,400 in 2013 to just 500 now. The Money Shop, Britain’s second biggest payday lender after Wonga, are set to close another 240 shops by the end of June.
What are these new regulations?
The new FCA regulations which were introduced to stop lenders charging the over the top annual interest rates include a daily interest rate cap of 0.8%, a capped default fee of £15, a limit of two times for a loan to be rolled over and new risk warnings on all advertising. Wizzcash have not only tightened their criteria for lending but also clearly display the cost to repay the loan on their home page. They also include links to their FCA regulations and a section on responsible lending.
The rules came into force in January 2015 and immediately borrowers saw a reduction in the repayment amounts as interest rates lowered. Martin Wheatley the FCA’s CEO says ‘I am confident that the new rules strike the right balance for firms and consumers. If the price cap was any lower, then we risk not having a viable market, any higher and there would not be adequate protection for borrowers.’
What does this mean for the industry as a whole?
There will always be people who struggle to obtain lower interest debt like credit cards, low interest loans or an overdraft and instead find themselves needing a source of fast but unfortunately more expensive cash. With a Conservative government and the continued need for austerity measures this is unlikely to end any time soon. In the meantime only the fittest will survive – or at least those that can and do comply with the FCA regulations.
