2014 is certainly going to be an interesting year for everybody involved in payday loans. Over the last 5 years, the payday loan sector has grown beyond anybody’s expectations, and, of course, with this kind of growth comes criticism and tighter scrutinisation of those involved with the industry.
Here at allthelenders Payday Loan Comparison we have been working within the industry for over 2 years and have seen some of the most aggressive growth during this time. We have had many lenders come, and many lenders go. To give you some perspective, we currently feature 33 lenders on the site, however we have seen some 11 lenders leave the market over the last year or so – around 25%.
That’s a lot of lenders and whilst each has their own reason for not trading any more (some rebrand, some merge together and some simply stop trading), it’s shows the contrast at which this industry is in at the moment – at one end of the scale you have the likes of Wonga who are turning out over £1million worth of profit per week, then at the other end you have the smaller, independently funded lenders struggling to manage their loan books due to the large default rate this type of lending attracts.
So what is going to happen next year? The answer really lies with the Financial Conduct Authority (FCA) and no doubt tougher regulation will be coming. We all need to make more of an effort to educate ourselves about the risks associated with any type of borrowing – including payday loans. I fully expect that several more lenders will leave the market through the course of this year and next, although there will still be a healthy demand for the loans and this will benefit the lenders that are managing their loan book properly and adapting their products to meet growing consumer need.
Proper affordability checks don’t just benefit the borrower, they benefit the lender too. Ultimately nobody lends money out knowing they won’t get it back and this is key to survival in this industry. A good loan book with a low default rate is the key to success here and this lies in the lenders underscoring and lending criteria – certainly those that we work with who have stricter acceptance criteria like The Quick Loan Shop are going to be the ones who will still be trading through next year and beyond.
One thing that’s for sure, the payday loan industry is under more scrutiny now than it’s ever been and change is coming. What those changes will be could be anyone’s guess at the moment, we doubt a cap on interest rates is likely however we feel it could be more guided towards responsible borrowing and responsible lending. There will be far more stringent checks on whether a borrower can afford the loan or not, and ultimately whilst it may make the whole process a little slower, it is the right thing to do.