Both public officials and the payday loan industry warned a couple of years ago that if the Financial Conduct Authority (FCA) were to impose new rules and regulations on payday lenders then it would impact businesses across the country, and lead to the losses of thousands of jobs.
After two years of reining in the payday loan industry, are the prognostications right? A simple yes would suffice.
According to a new report from the Consumer Finance Association (CFA), the number of payday loans declined from 10 million in 2014 to 1.8 million in 2016. Also, the number of payday lenders has decreased from 240 to a tepid 60. Overall, payday lending has gone down as much as 70 percent. Many of these loan companies that offer extra cash have moved their business online to cut cost and increase revenue.
Russell Hamblin-Boone, CEO of CFA, said in the report, using new figures from the FCA, that a majority of short-term, high-interest loan companies and stores have exited the British market completely.
New regulations, controls and restrictions have been installed since 2014 as part of stringent efforts to shield borrowers from exorbitant fees, additional charges and debt traps. With the new rules in place, borrowers have not had to incur extra fees. Also, interest rates are not above 0.8 percent a day.
Simply put: much of the new regulations in place meant that payday loans aren’t as profitable.
“Margins are very small now and we have seen a reduction in the market as a result of the regulation and price control,” he said in a statement.
Is there any way that payday lending can return to prominence and serve the most vulnerable? Hamblin-Boone thinks it can, and it starts with rewarding good payday loan borrowers.
“What we need to look at to prevent financial exclusion is rewarding people with good borrowing behavior regardless of the type of lending they choose,” he said. “If a payday customer pays back a loan well, why isn’t the credit reference agency saying, ‘well that’s good’, enabling them to move into more mainstream products?”
Despite the crackdowns and the reduction in the number of payday loans, the Financial Ombudsman is still receiving thousands of complaints. Over the last 12 months, the organization received 3,216 complaints, which is up 177 percent from the previous year. And this is being attribute to consumers knowing their rights and being more aware about unscrupulous activities of certain lenders.
This comes as a new report has found that more than 500,000 British consumers have had their payday and automobile finance loans written off after city officials discovered “unfair practices” by a debt collection firm known as Motormile Finance.
The FCA confirmed that these customers would have approximately $500 million worth of debt written off because the debt buyers, which acquire debt from payday loan companies in the hopes of recovering the owed funds, failed to perform the necessary research and due diligence, which then “led to unfair and unsuitable customer contact for recovery of those sums.”
“We have agreed this package, and previous action, to protect the customers of Motormile from unfair practices. We have worked closely with Motormile, and are now satisfied with their progress and the way that they will address their previous mistakes,” said Jonathan Davidson, director of supervision for retail and authorization at the FCA, in a statement.
Motormile issued an apology, and thanked FCA for informing them of the matter.
P-Value November 21st, 2016
Posted In: P-Value News