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More Payday Lenders Close Shop Over FCA Regulations

12 Dec 2019
Approx Reading time: 3 minutes
  • High-cost lenders closing down over strict FCA Regulations
  • Small Lenders presented an opportunity  to fill  gap  in short term loans supply
  • Calls for other alternatives to replace small lenders and high-cost lenders

Britain Staring At Short Supply for Payday Loans As FCA Bites

Britain’s £2 billion payday loan industry is in turmoil as the Financial Conduct Authority continues to implement a string of stringent regulations. Over the past one year, several high profile lending firms have shut down, raising concerns as to how people are going to access short-term loans.

The demise of High-Cost Lenders

The demise of high-cost lenders comes at a time when the £2 billion industry is experiencing a surge in demand for short-term loans. The volume for payday loans is expected to continue rising, given the high spending synonymous with Christmas and New Year festivities.

Demand for the high-cost loans is expected to tick higher after Christmas considering most people in the U.K will have received their salaries before Christmas. The fact that over 4 million Britons could need short-term loans after Christmas raises questions as to where they will borrow.

The situation is complicated by the fact that a majority of the lenders that accounted for 80% of the short-term loans industry have already closed shop. Most of them have gone under in response to tighter FCA regulation that has made business untenable.

Small Lenders Swing into Action

The gap created by the lack of high-cost lenders could force most people to turn to credit cards and other loans. Such a switch could trigger a ripple effect in the financial sector and could make it difficult for some people to access finance. The demise of lenders for short-term loans could fuel the black market lending industry as well as increased cases of loan sharking.

The lack of high profile lenders might as well present a window of opportunity small lenders and competitors looking to benefit from the holiday festivities. While the small lenders can't furnish millions of loans, they still stand a fair opportunity to address the market gap and in return, generate significant returns.

The small lenders will, however, have to look for additional sources of funds given the expected strong demand for short-term loans. The small lenders must also be ready to incur higher costs when it comes to credit checking as well as underwriting. The downside is that the small lenders may also come under pressure from the FCA and face the same fate that afflicted high-cost lenders.

Call for short-term loans alternatives

The demise of the high profile lenders arouses the need for other options to support the £2 billion payday loan industry. The need for other options has become clear as small lenders and competitors can't address the ever-growing demand for short-term loans.

Some of the alternatives that have the potential to address the gap in the provision of payday loans include startups that have come with unique ways of offering short-term payday loans. Venture capital-backed Wagestream is one of the startups that is providing employees a way of accessing their wages any time of the month.  Fund ourselves is another startup that is offering people short-term loans with no fees.

The future of the short-term loans industry could turn bleak should the alternatives fail to address the growing market need, occasioned by the exit of more short-term loan lenders.

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Rebecca White

Rebecca White is chief editor at Rebecca has an extensive amount of knowledge on financial subjects including short-term loans & debt consolidation in the UK and USA. Rebecca has wrote for many publishers such as Debt Secret, My Money, VL and more.