Table of Contents
- Payday lenders closing trigger loans volume decline
- Stringent FCA regulations take a toll on Payday loans business
- Risk of loan sharks may increase as payday loan outlets drop
Payday loans could be nonexistent in three years as the effects of Financial Conduct Authority regulations start to bite. A new report by Wagestream indicates that payday lenders are exiting the industry in numbers. The volume of payday loans has also dropped significantly, fuelling suggestions that the industry is on its deathbed.
Payday Loans Uncertainty
The number of payday lenders has reportedly shrunk by 31% over the past year. In the third quarter payday loans were down by 37% to 807,723 from 1,277,938 reported a year ago. The decline in loans stems from a significant decrease in the number of lenders offering high-interest loans.
One of the factors behind the massive decline in payday loan volume has to do with the fact that consumers are becoming increasingly wiser. While payday loans can be a lifesaver in times of emergencies, most of them come with high and unbearable interest rates.
The misery that these loans have brought to most people has continued to fuel a sense of fear, forcing people to look for better alternatives. For instance, workers are increasingly switching to new technologies powered by the likes of Bupa Rentokill and NHS. The services allow the workers to access their income between pay cycles at favorable terms.
FCA Interest Rate Cap Impact
The payday loan industry has also come under immense pressure on the FCA ramping up scrutiny over operations in the industry.
In addition to capping the amount of interest that the lenders can charge, the FCA also implemented regulations requiring lenders not to charge more than £15 as feeds on a borrower defaulting. The regulator also passed a 100% cost cap for interest fees and charges. The cap essentially means borrowers can no longer pay more than 100% of what they borrowed.
Implementation of interest rate cap and cost caps sought to ensure a fairground for lenders and borrowers. However, as it stands, it appears the regulations took a toll on the once-booming payday loan business.
A decline in the number of payday lenders is one of the results of the stringent FCA regulations. Conversely, large corporations such as Facebook and Google have also continued to mount pressure on the struggling payday loan industry. The firms have banned any form of advertising touching on payday loans on their platforms.
While there was hope that FCA regulations will succeed in bringing sanity to the payday loans industry, that might not necessarily be the case. Borrowers who have become dependent on payday loans which have given the limited restrictions may end up turning to illegal loan sharks as a way of satisfying their needs.
Rebecca White is chief editor at CreditRaters.com. 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.