It looks like, for all intents and purposes, that the payday industry is struggling under the new payday legislation. The Financial Conduct Authority (FCA) regulated the business at the beginning of the year and now requires that all payday companies are registered in order to trade. Other regulation, such as a 0.8% cap on interest, charged by payday lenders per day have changed the face of the industry.
Some of the major players in the UK payday industry as well as UK based companies that operate internationally are feeling the squeeze. Some payday businesses have published loses up to 37 million pounds in 2014, and many predict that they will fall into the red this year. In an effort to display cooperation with the FCA and the Competition and Market Authority (CMA) payday companies are cutting back. Cutting back on loans, cutting back on fees and interest and cutting back on staff. Several of the major players have cut their workforce in half and some have even exited the market altogether.
Payday Legislation: Pass the FCA assessments, can you still run a profitable business
The Consumer Financial Association (CFA) explains that it is not only the big fish that are having difficulty swimming in the small pond. According to the trade body all payday lenders will be affected by the necessary assessment and licenses that they will have t apply for to trade. Statistics predict that the number of stores offering short term loans since 2013 will fall by 58%. Some companies report up to 37 million pound in loss in 2014 and expect 2015 to be no better. Payday companies are faced with 36% in lenders and 1 million % since 2013.
Will payday survive under the new payday legislation?
When asked Richard Griffiths, of the CFA (Consumer Financial Association), replied that most small payday operators would most likely shut down, as the whole application and assessment procedure would not be worth it. He goes onto to say that, in his estimation, only approximately 30 lenders will survive the new payday legislation. That is still a larger amount than was first expected. Mr. Griffiths was then asked if it is possible to run a profitable payday loan business in accordance with the new payday legislation. His answer was,
“Could you start a payday business today within the cap and be profitable? Yes.”
In the same token, Mr. Griffiths that the payday lenders that do survive the new regulations will move away from offering only one type of loan. He predicts that the payday industry will move on to offering mini loans for longer than one month. Payday companies will be rolling out new and diverse products.
In a way the new legislation ushers in a new era for payday lenders. They move towards entering the banking and financial sector with packages that can compete and a restructuring in how they conduct their business. Payday legislation might actually be a positive step for lenders across the UK.