Death of the personal loan? Loans plunge 70 PERCENT
The payday lending industry has been decimated by the crackdown on the financial watchdog, with global lending slashed by up to 70%, an industry spokesperson has revealed.
About 1.8 million loans were made last year, up from ten million three years earlier, according to Consumer Finance Association chief executive Russell Hamblin-Boone.
The majority of companies offering high-cost short-term credit have left the market entirely, with just 60 licensed companies remaining where there were 240, according to analysis of figures from the industry body’s FCA. .
Crackdown: Payday lenders follow much stricter rules and as a result many have left the market
“The margins are now very low and we have seen a reduction in the market due to regulation and price controls,” he said.
Strict controls were imposed on payday lenders in 2014 and 2015, in an attempt to protect borrowers from exorbitant fees and out of control debt.
The new rules mean borrowers incur no additional fees beyond 0.8% interest per day.
The maximum penalty a lender can charge a customer who misses a payment is £ 15 over the life of the loan.
The cost of the loan cannot increase in interest beyond 100 percent of the amount borrowed in the first place.
The loans still carry very high interest rates. However, lenders have an obligation to make sure their customers can afford it and are treated fairly if they run into any difficulties.
The new rules mean that for many companies operating in this field, offering payday loans was no longer profitable.
Some lenders have reportedly already made their money from the additional fees they charged customers and renewing loans, leading to additional costs whether or not customers can afford them.
Speaking to the House of Lords Financial Exclusion Committee, Mr Hamblin-Boone suggested that instead of stigmatizing borrowers on these types of loans, their ability to repay them should be used as proof that they are good borrowers.
“What we need to look at to prevent financial exclusion is rewarding people with good borrowing behavior, regardless of what type of loan they choose,” he said.
“If a payday customer is paying off a loan well, why doesn’t the credit reference agency say, ‘Well, that’s good’, allowing them to move on to more mainstream products? “
He pointed out that people who take out this type of loan are “from all walks of life – from managerial positions in the industry to those with no contractual hours in catering and cleaning.”
The average income for a borrower is £ 25,500, compared to the UK average of £ 26,000 when they are more likely to work full time than the population as a whole, he said.
Another era: Wonga’s puppets were put to pasture some time ago as the lender sought to overhaul its image
He added that most loans are now repaid in installments, rather than as a lump sum at the end of the term. In addition, 93 percent of loan applications are refused.
The FCA crackdown has seen several lenders face hefty fines and demand compensation from clients.
In 2014, Wonga was ordered to pay around £ 2.6million to around 45,000 customers for unfair and deceptive debt collection practices.
Reduction: The number of payday lenders has decreased significantly since the introduction of the new rules
CFO Lending, which traded under names such as Payday First and Money Resolve, had to reimburse nearly £ 35million to nearly 100,000 customers after the watchdog found evidence of ‘unfair practices’.
Despite changes in the industry, there were still 3,216 complaints received during the year through April by the financial ombudsperson about payday loans, his annual figures show.
This is an increase of 178% from 1,157 the previous year. However, part of the increase could be due to greater awareness among borrowers of their rights.
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