The tide may finally be turning against Britain’s payday lending companies, according to new statistics showing that the introduction of tougher rules has prompted almost half of them to stop offering rapid loans.
Figures released by the Financial Conduct Authority (FCA) show that around 70 firms have not applied for permission to continue offering quick credit to customers under the strict new regulation regime introduced on 1 April.
Added to the 30 to have lost their lending licences since the start of last year, this means that around 100 of the UK’s 210 payday lenders have stopped offering the service in the past 18 months.
Under the new rules, financial companies involved in “higher risk” business such as payday loans face a much closer level of supervision from the FCA, which now also has the power to ban any misleading adverts.
Payday lenders and debt management companies must now limit the number of loan rollovers to two and can no longer rely on unlimited “continuous payment authorities” – automatic withdrawals from customers’ accounts – to recover money. They must also pass them information on how to get free debt advice.
“We have said before that firms would need to improve their operation or exit the market, and we are now seeing that happening,” said a spokesman for the FCA.
The figures, which emerged after an analysis by the Financial Times, have been hailed by campaigners. A spokesman for the debt charity StepChange said: “The news that a number of payday lenders are leaving the market is welcome. The FCA’s tougher regulatory framework has clearly prompted a number of firms to consider whether they can comply with the new rules or whether their business models are up to the task of functioning in a fair and sustainable credit market.”
But the Consumer Finance Association, which represents some of the best known payday lenders, warned that the hole left by the departing firms may be filled by illegal loan sharks.
Chief executive Russell Hamblin-Boone said: “We are already seeing many lenders leaving the market and I very much hope that in time we don’t look back and regret that a legal industry that was popular with borrowers has been replaced by unregulated, illegal lenders. This is a clear case of ‘be careful what you wish for’.”
The FCA, which took over consumer credit regulation from the Office of Fair Trading in April, is also set to place a cap on the total cost of credit charges next year. In November George Osborne said this would put a stop to the “absolutely outrageous fees and unacceptable practices” of some firms.
It is currently holding talks with payday loans companies, trade bodies and consumer organisations over how this might work – but any cap is likely to further drive down the number of firms providing quick credit services.
The payday loans industry has become a hotly debated political issue in the past year. Ed Miliband has attacked of Britain’s “Wonga economy” and has promised to introduce a new tax on the firms’ profits if Labour is elected in 2015.
The firms that have caved in…
One of the industry’s biggest companies with 451 branches, the Edinburgh-based firm agreed to stop selling payday loans last week after pressure from the FCA, which accused it of treating customers in debt poorly.
Last week, the Barnsley-based company said it was leaving the payday lending market due to “the continuing, even increasing threats of political interference by the Government,” with director Graeme Wingate attacking “political (sic) correct” MPs and campaigners.
And those that are still going…
Britain’s biggest payday lender issues loans online within 15 minutes and is still going strong. But the company’s multi-millionaire chairman Errol Damelin is set to stand down soon, after reportedly becoming weary of constantly having to defend its practices.
Owned by US payday loans group Cash America, it has run a series of advertising campaigns on British television but had not had a UK office – until now. Last month it said it would comply with a request from the FCA to create one, so its activities can be more easily monitored.