Payday lenders and guarantor lenders are expected to feel the squeeze in 2020, following on from regulatory crackdowns and a rise in customer complaints for the industries in the last few years.
Based on forecasts in the finance industry in 2020, more loan firms are set to collapse in the next twelve months after the demise of loan industry behemoths like Wonga failing to keep afloat.
But bad news for these loan sectors is good news for others, such as loan alternative startups including Wagestream and Neyber. We cover some predictions for the finance sector in 2020.
Increased FCA scrutiny for lenders
The Financial Conduct Authority (FCA) is expected to turn its attention in 2020 to the guarantor loan industry. Having previously implemented regulatory crackdowns to the payday loan industry altering it indefinitely, the FCA has raised concerns about guarantor loans.
The main area of scrutiny guarantor lenders face in 2020 comes down to lack of public awareness.
The regulatory watchdog fears that the rise in the number of guarantors making payments in 2018 and 2019 suggests a lack of awareness regarding the risks of becoming a guarantor in the first place.
It is expected the FCA will enforce new regulations in 2020 that guarantor lenders will need to adhere to keep their business in operation.
Loan alternatives will increase
Whilst some areas of finance are in decline, others are thriving, such as loan alternative startups like Wagestream and Neyber.
Filling the gap the payday loan industry has left firms like Wagestream offer employees the chance to receive their wages in real-time, removing the need to take out a payday loan.
Neyber offers customers a loans facility that goes through their work and an education programme to help with everyday budgeting, finance and more.
Another start-up, Badger Loans, offers an alternative to payday loans, helping customers find low cost loans across other industries including credit cards, guarantor, secured and unsecured.
It is expected that loan alternatives will increase their market share considerably over the next year.
Compensation claims will rise
Another predicted financial trend in 2020 is a continued rise in compensation claims. This is following the previous regulatory crackdowns by the FCA to the payday loans industry in 2014, and the subsequent fallout.
As the unscrupulous practices of a number of high-profile lenders made the headlines following the new regulations in 2014, customers increased their complaints.
Since then, many payday loan firms have received a tidal wave of compensation claims for mis-sold loans. It has led to the demise of many, including the loans giant Wonga, who have paid over £400 million worth of compensation to former customers, although this figure was actually quoted at owing closer to £1.6 billion.
Many consider that Amigo compensation claims will be the next wave of refunds since the company has lent out over £700 million since its inception in 2005.
Increase in lenders going into administration
With stricter regulations for the guarantor loans sector anticipated in 2020 as well as more compensation claims to be filed, lenders going under is expected too.
There have already been a number of loan companies collapsing by the end of 2019, such as PiggyBank and CashEuroNet and it looks set to continue.