Finding fast financial help online is something we take for granted these days, whereas just over a decade ago there were fewer lenders to choose from. The payday loan industry in particular saw a huge rise in popularity after the financial crisis of 2008, with consumers looking for quick cash options to help them during difficult times. However, since then the industry has come under scrutiny from the Financial Conduct Authority (FCA) and seen more regulations put in place to avoid bad practices from some lenders to protect consumers. So, how large is the payday loan industry now and what options do consumers have when borrowing online?
Better Choice & More Transparency
The good news for consumers these days is that payday loans lenders are much more transparent and upfront about their terms. Lenders that are FCA authorised follow the responsible lending guidelines carefully and ensure that borrowers can see exactly how much the loan they want will cost with no hidden fees or surprises. As they are High-cost Short-term Credit (HCSTC), they are positioned as an option to use only for emergencies when other options have been exhausted. Unexpected repair bills or financial emergencies that someone doesn’t have the savings to cover, make them a quick way to resolve their issue. As many as 5.4 million loans per year are estimated to be approved according to the FCA, with lending volumes rising since 2016.
At the height of their popularity, payday revenue totalled approximately £1.1 billion in the 2012 financial year, issuing out 10.2 million new loans. This represented a total value of £2.8 billion showing just how in demand high cost, short term credit was. Of the online lenders that were in business at that time, the market was dominated by only a few, with the largest being Wonga. According to the Competition Commission, of the 3 largest online payday loan lenders at that time, Wonga generated as much as 30-40% of the total industry revenue, putting them way ahead of competitors. Of course, since then the payday loan landscape has changed considerably, with Wonga falling into administration in 2018.
Regulations for Customer Protection
Since 2015, regulations have been in place to ensure more control of payday loan lending practices and ensure consumers are treated fairly. This includes an interest rate price cap of 0.8% per day, fixed default fees capped at £15 and a total cost price cap of 100%. The restrictions in place have ensured that payday lenders today have to be transparent with their lending options. Whilst the demand since 2012 for this type of loan has reduced, so has the number of lenders providing them, with 85% of new loans from just 10 lenders in total. Despite the reduction, there are still plenty of options for consumers looking for a quick cash injection when they need it most, and the loans available have seen the cost of borrowing become more stable and lower than before the price caps were introduced.
