The regulator has thrown its weight around but payday lenders will survive?

It doesn’t look pretty when one of the biggest players in that industry has reported losses to the tune of 37 million pounds in 2014. This comes while the FCA (Finance Conduct Authourity) was busy looking into how the payday was to be regulated. It was only in January 2015 that the FCA published the regulations, and interest rates were capped, roll overs were limited and lenders are obliged to share information regarding credit ratings of their customers. Loan comparison sites have also been introduced and lenders must publish their fees and charges against other payday firms.

That same company has predicted even further loses in 2015, and have been the brunt of jokes on social media by people extending loans at an APR of 5000%. Many other companies report a loss of up to 50% of their client base. Lending volumes are plummeting across the board by up to 40%. Some companies are considering a complete overhaul by changing their name and the credit options that will they offer. Another change that seems to be prevalent amoung lenders is a more conscientious shift in lending models. Companies are taking a more responsible approach, such as only end to clients who can afford to repay the loan, or not selling loans that require a lump sum repayment. All of these changes are examples of how payday companies are eager to put the past behind them and start on a fresh foot. Payday lenders will survive.

Not all payday lenders will survive, more than half to go!

The FCA reports that approximately 400 payday operations are currently licensed to do business in the UK. However, the deadline to apply for the new licenses under the new regulation was in February, and the FCA states that the processing of the applications will take months to complete. The regulator has also stated that it does not expect as many companies to apply or pass the strict new criteria.

Richard Griffiths, of the CFA (Consumer Financial Association), estimates that there are 30 odd lenders in the UK that are already operating in line with the new regulations. He also predicts that most of the smaller payday companies will go out of business once the bigger companies take over. They will simply not be able to compete, or don’t want to go through the assessment process.

Payday lenders will survive with the help of new and improved products

When asked, a spokesman from a large payday lending company said that the reputation of payday lenders needs to be neatened up and that the regulations and assessments were going to bring new life to the industry. He went on to say,

“Could you start a payday business today within the cap and be profitable? Yes.”

Predictions suggest that this will be the advent of the new face of payday. These companies cannot simply rely on one product, namely one short term high interest loan at a fixed price. They are going to have to come out with a range of different offerings for their customers in order to keep afloat. Could it be that payday will ascend to stand beside the likes of a credit union, or a building society?