DFC Global, the American owner of payday loan lender Money Shop, has put the company up for sale as the company shifts focus from the increasingly regulated payday loan business in the UK.
Although DFC Global says it received a bid approach offer from an unnamed suitor, the company also admits that the Money Shop has been facing difficulties over the past few years now.
The recent crackdown on rogue UK payday loan lenders and tightening regulation has pushed DFC Global to reconsider participating in the UK payday loan industry. Since buying the Money Shop back in 1999, DFC Global has closed down more than 50% of its stores in the UK in the past couple of years as the company looks for ways of coping in an increasingly difficult business environment.
About DFC Global
DFC Global is an American-based financial services company with operations in 1000+ locations in 7 countries. DFC Global focuses on low income or bad credit consumers offering short term loans such as payday loans. The company also provides pawnbroking as well as gold buying services. DFC brands include; The Money Shop in the UK and Ireland, Insta-Cheques, We The People and Loan Mart. The company owns high-end pawnbroker, Suttons & Robertsons and also operates online short term loan lenders such as Payday Express and Payday UK.
In 2009, DFC Global was UK’s largest payday loan provider with a market share of approximately 25%. The company which was previously known as Monetary Management Corporation changed its name in 1990. DFC Global is owned by U.S. private equity firm Lone Star Funds.
DFC Global is believed to have hired KBW (Keefe, Bruyette & Woods) investment bankers to sell Dollar UK which owns; the Money Shop, online payday loan companies Payday UK and Payday Express as well as several pawnbroking businesses owned by DFC.
According to a DFC spokesman, DFC is aware of the ongoing media speculation on the sale of the Money Shop. However, the company insists that the details remain confidential between all the parties involved. DFC, however, reveals that an approach bid has been made and the company plans on assessing the offer in the ”normal” manner.
UK payday loan lender struggles
Most UK payday loan lenders have struggled to stay in business since the Financial Conduct Authority (FCA) began tightening regulation and cracking down on lenders using unfair lending practices.
In January 2015, the FCA capped the interest rate to 0.8% per day ensuring payday loan borrowers never pay over £24 in interest charges for £100 loans granted for a month. The FCA also capped the total fees and charges applicable ensuring borrowers never have to pay more than they borrow in fees and charges.
Since then, many payday loan lenders in the UK have closed shop. The Money Shop has closed more than 300 branches in the UK alone. Currently, the lender has reduced its branches from over 600 to 230 in an effort to remain profitable in an increasingly difficult business environment.
The Money Shop has faced other struggles besides having to close down most of its branches. For instance, the lender has also been forced to pay fines for unfair lending practices. Just recently, the Money Shop was ordered to pay some of its customers (147,000 customers) £15.3m as compensation for unfair lending practices ranging from system errors to bad affordability checks and debt collection practices.
According to DFC, the lender has since changed its operations by choosing to focus on pre-paid credit cards as well as longer term loans. Although this move among many other moves taken have been deemed viable, the Money Shop is still posting losses. According to the lender’s recent accounts, the UK business suffered a full year loss amounting to £104m in 2015.
Speculators have no choice but to make the worst assumptions regarding the sale of the Money Shop. Although it is clear that the Money Shop is struggling to adjust to the FCA’s new rules and guidelines on payday loan lending like most payday loan lenders in the UK who had been used to lenient rules and guidelines, a sale, that will hopefully reverse the fortunes of the lender is underway.
DFC is also banking on the fact that the Money Shop has changed operations to focus on more profitable/less risky lending.
The Money Shop is a major sponsor of football club, Wolverhampton Wanderers.