There was much talk in the industry and more widely in the public domain last year about the new FCA regulations and how they would spell the end of the often vilified ‘Payday’ sector. This article looks at the sector one month after the price cap went into effect and asks ‘Has anything really changed?’
There are many articles, on this website and others, discussing the changes the FCA had announced and without going into detail on all of them, these included: Price caps (interest rate, default costs, total amount repayable), advertising rules and account management rules (rollovers etc). It was generally accepted that these measure would ‘clear up the industry’ and at one stage the FCA believed that only 3 or 4 of the largest providers would survive:
“Our modelling shows that reducing the initial charge element of the cap increases the risk of firm exit, and hence the risk that very few firms remain in the market. The modelling suggests that at 0.8% the three largest online firms will be able to continue to offer high-cost short-term credit, and that it is possible that one high-street firm may be able to operate” (https://www.fca.org.uk/publication/consultation/cp14-10.pdf).
A quick Google search suggests that not everything has gone as expected. Pop in the phrase ‘Payday Loans’ into your search engine and it returns 41 million results. The first page results (in reality the main ones clicked on) provide links to 6 different lenders in the organic results and a further 5 lenders in the ‘paid for spaces’ (at the top and down the right hand side). There are also a couple of brokers and some news articles.
Further investigation into those lenders does though show a shift away from payday. About half of the lenders on page 1 are actually instalment lenders, looking to offer money over a number of repayments as opposed to the typical single payment. On the face of it, this may be a good customer outcome, but it may not always be better to pay back over a longer term as the total interest payable may make it cost more than a payday loan. There is another article on this site ‘Moving from Payday to Short Term Lending – Just Shifting The Problem‘ that covers this in more detail. There is still a wide range of payday loans on offer with rates well over 1,000% APR. From 15 years experience in the market, the names listed are not all those you would associate with being the top 3 or 4 in the market place.
Looking into some of the payday broker sites instantly shows a much wider range with one site listing a further 11 payday loan companies and 3 instalment loan options. Some of the ‘lenders’ actually turn out to be other brokers which can only serve to confuse customers who are looking for clarity to be able to shop around. Whilst not directly in contravention of any of the new FCA rules, this does not play especially well to the ‘clear, fair and not misleading’ TCF requirement.
Most sites reviewed do seem to have taken the new rules into consideration. There is often clarity around ensuring the loan does not exceed the price cap. One site boldly proclaims:
“Each installment loan meets the FCA rate cap requirements. This means you will never pay more than 0.8% interest per day and never pay back in interest more than the original amount borrowed.”
There is also, generally. Good sign posting towards the money advice service:
“Warning: Late repayment can cause you serious money problems. For help, go to moneyadviceservice.org.uk.”
So, whilst there does seem to be some general improvements in conduct and performance, there is very clearly an active Payday scene which is populated by more than the top 4 providers. Whether this is because the FCA got their predictions wrong, lenders found another way to make money in the marketplace or just not enough time has passed for the changes to have an effect is yet to be seen.
We’ll return to review the marketplace again in the future to see if the expected changes ever actually happen or if the market finds another way to adapt to the changes required.