Back in 2013, the UK high cost credit sector (or payday lending) was at an all time high. Around 2 billion was lent to UK consumers and brands such as Wonga were hailed as one of the brightest, fastest growing tech companies with unicorn-like valuations.
In 2014, the FCA came in to regulate the industry and clean up some of the less savoury practices.
Since then, the industry has contracted considerably with current lending volumes closer to £1bn and FCA price caps reducing profitability for lenders.The result of these regulatory changes has been a much improved experience for UK borrowers, with keener pricing and a more ethical approach to dealing with customers.
Whilst these changes have obviously improved the experience of many thousands of UK customers, it has meant that the market has shifted its focus to higher value loans and better quality customers – leaving hundreds of thousands of customers out in the cold.
According to a spokesperson from MoneyGap who operate the UK website CashLady, the shift in regulation has meant lenders are now much more cautious about who they lend to and contrary to popular opinion, not everybody is offered a loan, despite the headline APR’s.
“Since 2014 we have seen a steep decline in lender appetite with more than 65% of applicants not able to access the funds they need.”
Despite this, the volume of loans is on the up, with the FCA reporting 5.4million loans being issued in the year originating to June 2018.
The FCA points out that these are the number of loans and not individual application, with many customers taking out multiple loans in a single year.
The market has also become more concentrated with just 10 players dominating the landscape with an 85% market share.
With 2/3 of loan applicants being turned down for finance in the UK, there are millions of customers essentially locked out of credit markets altogether.
Illegal money lending (commonly known as ‘loan sharking’) is on the rise in the UK with as many as 310,000 people owing money to illegal and often violent money lenders.
Whilst the FCA regulation has undoubtedly helped to protect borrowers from excessive interest charges and fees, there appears to be little discussion around credit solutions for those who suffer from low credit scores and poor credit histories.
Fintech companies such as Wagestream Payactive and Daily Pay offer platforms that companies can use to allow their employees flexible access to wages and salaries. For a small fee, employees can draw down money before their usual pay schedule. Solutions like this could certainly help employees avoid unnecessary loans, but there remains a question mark over the likelihood of widespread adoption.
Credit Unions membership is on the rise in the UK with membership rising to 325,000 members but whilst membership is on the up, credit unions themselves are closing with 9 shutting down the last year alone.
With Brexit fast approaching, and many prominent companies closing down or relocating out of the UK, the future looks challenging for many hardworking British employees.
Whilst the High Cost Credit industry isn’t going to solve the problem, the loan sharks are circling and putting people in real danger.