It is too soon to be able to measure what effect the payday loan caps will have on the industry. There are of course many theories. Some say that the caps will only help the sector grow further while others believe that the caps will put many lenders out of business. While it is true that some of the smaller payday companies have left the market, the big players are still going strong. It is the big payday companies that will survive a drop in APRs (annual percentage rates) to 1,200 percent. In reality, this drop in APR will have a minimum effect. If you borrow 200 pounds with the new APR, the cost of your average payday loan falls only by 1 pound.
Payday loan caps in the USA
It has been reported by the consultancy Policis that the payday loan caps in the States caused the supply of credit to fall, but unsurprisingly the demand to remain the same. What happens when demand is greater than supply? A black market emerges. The payday industry in the USA has moved online, and business is booming. Many, if not most of the online operators are unlicensed or lending illegally. Policis warns against clamping down too hard on the industry as the harder the regulation, the more lenders will disappear into cyberspace. It then becomes exceedingly difficult to regulate payday lenders, as well as payday loan caps. Back in Britain, almost 80 percent of payday lenders operate online. The FCA (Financial Conduct Authority) understands that the payday loan caps may limit access of funds to the citizens of the UK, but has a seemingly reasonable solution to the problem. The FCA states that if people have no access to credit, it would be best to appeal to family and friends.
Payday loan caps at home in the UK
In Britain, the problem is far from being solved. The alternatives are also grim. Where does one get ones hands on some credit? What does one do when one is determined to not take out a payday loan? There aren’t any viable solutions. Credit Unions do not have the infrastructure to give out loans like a payday company does. It simply does not have the funds. Microfinance organisations are not much different. The Church of England took on one of the big payday fish and failed. They created a credit union that has been of some help to the citizens of Britain, but can by no measure end money out like some of the big payday firms.
The payday problem
The problem is this: the citizens of Britain need financial services that are flexible and responsive, quick and dynamic. Things are complicated these days. People have less money to work with and their wages are variable. It is clear that now that the payday industry has been regulated, and nothing has really happened to save the people from its sharp claws, this could be another problem. Let’s try something: Give everyone a raise, a little more money in the pay packet, and see if that helps a little bit. Then we could be using payday loans for what they were designed for.