Payday lenders leaving the market: what this means for responsible lending

It has been revealed today that around a quarter of payday lenders will exit the market after the Financial Conduct Authority pick-up the baton for consumer credit regulation.

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It has been revealed today that around a quarter of payday lenders will exit the market after the Financial Conduct Authority pick-up the baton for consumer credit regulation.

But let’s be clear: the FCA are hardly bringing with them stricter rules; they’re just establishing better enforcement of the current rules.

Their new rules, published in February, include limiting the number of times a loan can be rolled over to two (a bit pointless), a restriction to failed continuous payment authority attempts (good, though the main point here is to ensure lenders can’t drain borrowers accounts), and a requirement to signpost free debt advice to customers (good).

These are not so radical, are they?

It had been found by the OFT last year that around 50 per cent of revenue for payday lenders was made from rollover loans – that is to say, encouraging people to take on debt that they cannot afford, despite this being classed as irresponsible lending in the regulatory guidance.

Perhaps if they cannot play by the rules they shouldn’t be in the market. It is a shame and a worry, but if responsible lending is a step too far then perhaps it is no bad thing that they leave.

But we should not pretend that the FCA’s new rules are too tough on lenders. A price cap has been postponed until 2015 and the capped rate itself hasn’t been decided yet. We don’t even know if it will be effective.

For toughness we should look at how the payday industry is regulated abroad. In Australia, for example, criminal penalties of up to $55,000 for body corporates, two years imprisonment or both can be thrown at a lender. Failure to credit check may be met with penalties of up to $1,100,000 for body corporates. That’s radical.

While I get het up by an economy fuelled by dangerous debt, I also don’t want household access to finance squeezed. Instead I want to see better, more responsible lending by lenders. Businesses currently in the payday lending industry who are leaving because of better law enforcement prove once again how difficult it is for payday lenders to lend responsibly – which is why the industry is so tainted with scandal.

I look forward to a day when responsible credit is more widely available and when companies don’t make quick cash from those who need finance the most.

One Response to “Payday lenders leaving the market: what this means for responsible lending”

  1. JC

    So how are people with a bad credit history supposed to borrow money? They wouldn’t pass the criteria a credit union would need to apply. Is the answer to not allow them to borrow?

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