Tag Archives: payday loan

FCA Warning: Are Young People In The UK Borrowing Too Much?

FCA Warning: Are Young People In The UK Borrowing Too Much?

In a recent ”Money Matters” interview with BBC, the C.E.O. of the FCA, Andrew Bailey expressed concerns about growing debt among young people aged between 18 and 34 years in the UK. His concerns came as the number of insolvent individuals in the 18 to 34 age bracket increased by 31% between years 2015 and 2016, according to the Insolvency Service.

The latest Insolvency Service statistics show that seaside towns in Wales and England have the worst debt levels among the youth in the UK. The towns that are worst hit include; Scarborough, Torbay, and the Isle of Wight.

The FCA is currently focusing on sustainable, affordable credit, i.e., reducing high-cost payday loans and long-term credit card debt. In his interview, Bailey warned that there is an increasing number of young UK citizens taking out credit cards and payday loans among other short-term credit loans to cater for basic living expenses.

Although Bailey goes ahead to state that the current debt levels haven’t reached a critical level from a macroeconomic standpoint, there are serious concerns about why debt levels are increasing among young people. Bailey attributes this new disturbing trend to a generational shift in patterns of wealth and income. He doesn’t view this trend as reckless borrowing per se, but an indication of the current basic living standards.

Bailey feels basic living costs have increased drastically over the decades forcing the young generation to borrow more to meet essential living costs. He points out specifics like the high cost of rental houses as well as poor/lack of income growth as the main causes of the debt problem. Today’s youth also have lower asset ownership levels which is a different generational experience from decades ago.

Bailey also attributes the current debt levels among the youth to an increase in ”unsecured lending” ranging from credit cards and overdrafts to car loan and personal loans. According to the latest Bank of England statistics, consumer debt now stands at over £200 billion and increasing drastically at 10% every year. Savings are also decreasing due to low interest rates and higher cost of living.

Other sentiments

According to Vince Cable, the Liberal Democrat Leader, the current debt problem among young people in the UK is attributed to the conservatives’ failure to implement their manifesto pledge on creating better laws for people facing financial difficulties. Cable claims the pledge to offer legal protection ranging from interest to charges and bailiffs for 6 weeks to individuals in distress because of debt will go a long way to solve the debt problem in the UK.

Jonathan Reynolds who is the Treasury’s shadow economic secretary finds a lot of human tragedy in the UK debt story. According to him, the youth don’t have a choice. Labour suggests there should be a cap on charges on other forms of short-term debt in line with the payday loan cap. According to Shadow Chancellor, John McDonnell, there is a need for special focus on credit card debt which has spiralled out of control. McDonnell has plans to help over 3 million people in the UK who are currently paying more than they should in interest payments.

Joanna Elson, the C.E.O. of Money Advice Trust agrees with Andrew Bailey’s sentiments. Elson states that although the current debt levels among the youth may not be severe to the economy, the trend has a critical effect on an individual level. Elson stresses the importance of debt advice but recognises the fact that very few young people are seeking financial advice when they find themselves in financial problems.

FCA intervention

The FCA is currently looking at some practices as well as forms of high-cost debt which are the main contributors to the UK debt problem. Although a lot has been done to regulate payday loans among other short-term loans in the recent past, the FCA boss would love to see increased focus on sustainable, affordable credit provision. The FCA has also turned its attention to the rent-to-own industry which charges high interest for ”white goods” like washing machines.

The FCA clampdown on payday loan lenders which started in 2015 brought sanity to a troubled industry. Payday loan charges are now capped. Borrowers don’t need to worry about affordability as long as they choose a reputable payday lender. Furthermore, there has been reduced over-dependence on payday loans according to Treasury select committee member, Kit Malthouse.

The next step is making the payday loan rules an industry standard. The FCA boss has stressed the importance of sustainable credit in society and offered assurances on maintaining a close eye on high-cost lending going forward.

Is the Company Director of Swift Money Limited.
He oversees all day to day operations of the company and actively participates in providing information regarding the payday/short term loan industry.

Data Protection Laws Set to Tighten in the UK

Data Protection Laws Set to Tighten in the UK

The British government has proposed a data protection bill meant to give the British people more power and control over how their personal data is used. The bill proposes a number of changes to the current data protection laws the most notable being; easier access to all data held by companies, increased ability to withdraw access as well as the ability to request data deletion.

The regulation which will bring GDPR (General Data Protection Regulation) into UK law is set to be in effect in less than a year according to Matt Hancock, the UK Digital Minister behind the proposed bill. Hancock states that the new data protection laws will offer the UK a more dynamic and robust set of data laws. In a statement issued by Hancock, ”UK citizens will have more control over how their data is used. The proposed data laws will also prepare UK citizens for Brexit.”

The new regulation has caused concern in organizations across the UK given the fines applicable are easier to issue and more damaging to companies which fail to comply. For instance, fines could amount to 4% of a company’s total global turnover which could easily lead to the downfall of many companies in the event of serve fines. Currently, data protection fines can’t exceed £500,000.

Data protection incidents

Data breaches in the UK have increased in the recent past. Hundreds of thousands of UK citizens have been left exposed by data breaches in the past. A notable example is the data breach that hit UK’s leading payday loan lender Wonga. The incident affected approximately 245,000 Wonga customers in the UK and 25,000 in Poland.

The Wonga data breach happened in March 2017. Wonga, however, waited until April 2017 to notify its clients after establishing the extent of the breach. The incident saw Wonga customer’s names, addresses, phone numbers, bank a/c and sort code numbers stolen. Wonga has suffered another data breach back in 2012/13. The identity theft incident saw Wonga customers lose £3 million after scammers made over 19,000 fraudulent payday loan applications.

UK telecom company TalkTalk has also been a victim of a data breach. In October 2015, TalkTalk systems were hacked compromising customer information belonging to 157,000 customers. The company was fined £400,000 which was far from substantial according to many people. The importance of better data protection laws can’t, therefore, be ignored. With the new laws, firms must be more vigilant in protecting customer’s data or face serious repercussions. Research from Veritas indicates that only 9% of companies in the UK have appropriate data protection practices in place today even with the ongoing regulatory changes.

Repercussions/effects

With the proposed data protection laws set to take effect in less than a year, it is important for organizations to take all the necessary steps in the right direction.

Information Technology

Organizations using cloud and automation technology already will find it easier to cope with the new data protection laws. When GDPR comes into effect, all organizations handling personal data belonging to UK citizens will have to comply. The first step towards compliance is getting the right IT systems in place. Safeguards must also be built into all processes from the beginning to the end.

Data migration

Organizations may also be forced to move data. According to Peter Godden, Vice President of EMEA at Zerto, businesses may be required to move critical data in/out of Britain to comply with the new regulations. Many companies stand to struggle to move critical data across various systems without experiencing problems like downtime. Good businesses continuity plans are crucial going forward for companies keen on avoiding data migration problems.

Data storage

The new data protection laws will also introduce data storage challenges. According to Matthew Bryars, CEO of Aeriandi, ”many companies have not considered the impact of GDPR on data storage processes such as storage of customer calls done to improve customer service. The new laws give customers an express right to demand for their personal call information/data to be erased. The laws are also more stringent on backup and storage of voice call data. Businesses must develop the capacity and ability to store and retrieve customer call data faster on request.”

Nexsan COO, Geoff Barrall also shares the same sentiments. According to him, ”CIO’s must evaluate their current IT infrastructure and create purpose-built secure data storage environments to be able to meet the new data protection laws. Barrall stresses the need for either cloud-based or on-site storage customer data storage solutions as long as they are flexible, agile and secure.”

Is the Company Director of Swift Money Limited.
He oversees all day to day operations of the company and actively participates in providing information regarding the payday/short term loan industry.

The FCA Maintains the Payday Loan Price Cap in Place until 2020

The FCA Keeps the Payday Loan Price Cap in Place until 2020

On 31st July 2017, the FCA published the results of a review it had done on high-cost credit which included an assessment of the effectiveness of its recent payday loan price cap.

The review offers undisputed evidence that the FCA regulation on payday loan lending has worked in favour of consumers as intended given that approximately 760,000 payday loan borrowers in the UK are saving over £150m every year. The review also shows that payday loan firms are now seeing fewer borrowers and debt charities with debt problems arising from expensive short-term credit. For these reasons, the FCA has decided to leave the current payday loan regulation unchanged until 2020.

Other forms of high-cost short-term loans

Besides clearing concerns on payday loans, the review also addresses concerns on other high-cost credit such as overdrafts. According to the review, The FCA feels fundamental changes on overdrafts are necessary in the future. Fees charged on unarranged overdrafts remain high and complex.

Home-collected credit, Rent-to-own credit as well as catalogue credit sectors are also on the spot. Although high-cost products and markets have many similarities, there are significant differences on how these products and markets work as well as how borrowers use them. The FCA is in the process of making tailored solutions to address these issues and is set to give a way forward in spring 2018.

According to the C.E.O. of the FCA, Andrew Bailey, high-cost credit products are a key focus for the regulator given the risks they expose to vulnerable customers. Bailey is pleased with the current evidence showing a clear improvement in the payday loan market after a period where payday loan firms used unacceptable business models. Besides the obvious improvement, he feels there is more to be done in terms of identifying other areas where short-term credit consumers may be suffering. Bailey’s focus is now on the nature as well as the extent of problems surrounding unarranged overdrafts without touching on the positive that customers find useful.

Clarifications

Alongside the review are proposals published to clarify FCA rules on affordability and creditworthiness. Most lenders understand the regulator’s rules concerning checks on prospective borrower’s creditworthiness including the products they can afford, however, there are uncertainties in parts of the credit market. For this reason, the FCA is proposing to effect some changes to make its expectations clearer.

The regulator has also published additional details on its motor finance work highlighting the issues it is considering as well as the steps it will take to develop an understanding on the market. An update is expected to be issued in 2018 during the first quarter.

Industry reaction

The FCA review results and comments have been received well in the industry. According to Eric Leenders, Managing Director, ”UK Finance members are committed to responsible lending and serving better those clients who need access to credit regardless of the type of credit product they need.” Leenders affirms the importance of consumer credit in promoting economic growth when used sustainably and recognises the importance of lenders working hard to balance between helping customers and ensuring long-term affordability. Leenders also agrees that transparency is an important issue and UK Finance is doing everything necessary to make overdraft fees clearer. Leenders also stresses the fact that UK Finance members are open to help customers struggling with repayments and welcomes efforts by the FCA to work closely with lenders.

Stephen Sklaroff, Director General of the FLA (Finance and Leasing Association) is of the same opinion. According to Sklaroff, ”the FLA is working tirelessly to make sure its members lend responsibly as well as treat customers fairly. We are aware that the FCA has found that most lenders are addressing affordability appropriately and we look forward to engaging the FCA on affordability assessments as the regulator does more exploratory work in motor markets.”

Gillian Guy, Citizens Advice C.E.O. attests to the fact that the payday loan price cap has protected many borrowers from unmanageable debt. According to Guy, ”many people were subject to extortionate charges trapping them into debt. Since the price cap among other new measures, fewer people are seeking our help.” Guy, however, states that things have improved for payday loans only. ”Other high-cost loans such as guarantor loans, doorstep loans, rent-to-own services and overdrafts are experiencing problems. It’s good to see the regulator recognise this and take the necessary action. We think a similar price cap will help safeguard consumers of these other forms of high-cost credit.”

 

Is the Company Director of Swift Money Limited.
He oversees all day to day operations of the company and actively participates in providing information regarding the payday/short term loan industry.

10 Years Later, UK is Getting Ready for Another Debt Crisis

10 Years Later, UK is Getting Ready for Another Debt Crisis

Ten years after the dreaded 2007 credit crunch, the signs of another impending debt crisis have begun to show. Prices are rising nonstop year after year while wages remain the same. Many people have also resulted to loans to survive. Unsecured consumer debt has reached the 2008 levels at over £200 billion and what’s shocking is; it’s rising by over 10% every year. In a nutshell, the UK is back to where it was before the credit crunch. The only difference is, there are concerns about it early.

Concerns

Credit rating agency Moody’s and the Bank of England are among the institutions which have raised concerns about the impending debt crisis. The concerns of these institutions are however focused on the risks the current debt situation has on the economy.

The FCA (Financial Conduct Authority) has also expressed concerns and appears to do a better job by breaking the problem down at street level. According to the FCA, one in every six people with credit card debt, personal lending as well as car loans is in serious trouble. This translates to approximately 2.2 million people.

A recent TUC report dubbed ”Britain in the Red” highlighted this issue in 2016. According to the report, 3.2 million UK households were experiencing debt problems with 1.6 million people in serious debt problems i.e. spending over 40% of their monthly income to service debt.

What’s to blame?

The 2007 crash was blamed on reckless spending on luxury as well as household goods. The situation today isn’t much different with the biggest blame falling on cars.

Repercussions

One of the most favourite ways of getting money to spend on luxuries and household goods as a home owner in the past was to remortgage your home. But this only worked for homeowners who had bought homes before the market reached its peak. For those who are buying now, remortgaging isn’t an option. If the interest rates rise by 1%, 18,000 Britons risk going bankrupt according to the Insolvency Service.

The problem

The UK is just about to get into another debt crisis because of several factors. One, zero-interest deals are in abundance again. Many people are managing their credit cards by simply transferring debt. According to recent statistics, 43% of all credit card users in the UK have zero-interest deals. This may appear favorable to borrowers on face value, however; it has left many in persistent debt. Lenders love customers who manage to meet their minimum monthly repayment objectives. There are millions of such borrowers in the UK.

Personal loans are also a problem. Before the 2007 crash, the payday loan industry in the UK wasn’t as big. Nevertheless, people had begun depending on payday loans for survival. Statistics indicate that approximately 250,000 people were using short term loans such as payday loans as of December 2006.

The demand for short-term loans is also a problem. The recent payday loan regulations have made it harder for payday loan lenders to exploit vulnerable borrowers. However, the regulation can’t deal with the demand. Today, few people can be able to survive without debt. In 2017, debt is being taken for basic necessities as opposed to luxuries.

The reasons behind this are obvious. Wages have stagnated, yet prices keep rising. After the 2007 debt crisis, households cut off spending on new items. With time, however, spending is inevitable since things become old or get damaged. Most personal loans today are on rent-to-buy deals. Modern necessities i.e. white goods are being acquired more and more this way today.

What’s more is; people don’t save to buy such goods anymore. The low-interest rates have discouraged saving. As a result, fewer households have funds for catering for emergencies, let alone white goods when they are needed.

The biggest problem of them all is Britain’s skewed economy where wages don’t match the cost of living. Although low wages have been a problem for a long time, there were incentives like tax credits before. Today, the welfare state is being used to punish people. Individuals who are dependent are forced into accepting poor pay/conditions as well as debt simply because they don’t have an alternative.

Unsecured loans replaced Government tax credits after the crash.

The effects of this is; the poor will get poorer while the rich get richer. All signs show that the UK is getting into another debt crisis soon, unless something drastic is done to boost wages.

Is the Company Director of Swift Money Limited.
He oversees all day to day operations of the company and actively participates in providing information regarding the payday/short term loan industry.

5 Important Tips to Keep You Safe From Fraud

5 Important Tips to Keep You Safe From Fraud

Cybercrime incidences have increased drastically over the past decade. According to the Financial Fraud Action UK, online fraud incidences have increased by 53% over the past year alone. The latest statics show that someone is scammed online, in the UK, every 15 seconds. Most of these cases are affecting credit and debit card users who divulge their personal/bank details online making it easier for scammers to use this information in cases of data breaches. Short term loan borrowers like payday loan borrowers have also been victims of online fraud in the UK since such loans are acquired online.

There are a few quick steps you can take to avoid being part of this shocking statistic. One, you must trust your gut feeling when selecting offers or submitting personal information online. If an offer seems dodgy or too good to be true, it probably is. Two, you should never open unsolicited emails. Lastly, keep your pin/s and passwords secret/safe. Never divulge pin/password information online. Here’s a more in-depth discussion avoiding fraudsters.

Create ”perfect” passwords

You can’t afford to use regular words or obvious number combinations as passwords today. Hackers can ”break” such passwords. You should never use obvious words as passwords, i.e. your middle name, children’s names, etc. as name passwords are the easiest to crack. The ”perfect” password today consists of; random words that are unrelated to your life. The password should also have many digits preferably six or more that are random but easy for you to remember. Stay away from birth dates. Your ”perfect” password should also include symbols such as $, #, %, etc. Ideally, the symbols should be inserted randomly between the numbers and letters/words that make up your password. Lastly, use both capital and small letters. A great example of a perfect password would be You1r7Kin9gSh88ip05$$!! You can use password testing tools to analyse the strength of your password.

Maintain unmatched social media safety/privacy

Social media has made it easy to acquire a person’s personal information without their consent. If you don’t set the appropriate security/privacy setting on all your social media accounts, you don’t have control over who views your personal information such as; your real names, date of birth, personal address, etc. which can be used to hack your online accounts. Don’t add people you don’t know to your social media profiles or disclose too much personal information on social media. Disclosing your pet’s name for instance can make your online accounts vulnerable if you have used your pet’s name as a security question.

Maintain unmatched email safety

Anyone can send you an email provided they know your email address. Considering emails are used to send viruses/malicious software, you should never open unsolicited emails as well as unknown attachments or click on links whose source can’t be verified. You should also be wary of emails sent from sources you assume to know, i.e., your bank. Many people have fallen for spear phishing in the UK where fraudsters send automated emails appearing to originate from people/institutions you know such as your bank/credit card company. If you open and click on links on such emails by mistake, change applicable passwords immediately. You should also pay attention to the email safety information your bank sends to you as well as familiarise yourself with the official email address of your bank/credit card company.

Invest in a good anti-virus software

You can save yourself from all the trouble of keeping up-to-date with the latest online scams by investing in the best anti-virus software you can get. A good anti-virus will offer you all kinds of protection online giving you a stress-free experience. Never use free anti-virus software if you use your computer to do online banking transactions among other online transactions involving sensitive personal information. Free anti-virus software offers basic protection which isn’t enough to detect and deal with threats effectively.

Don’t forget to protect your phone

You should also invest in a good Smartphone anti-virus. Smartphones have substituted personal computers and laptops. Many people make payments and submit sensitive personal information over their phones. To avoid exposing yourself to fraudsters, make sure you Smartphone has an anti-virus. You should also restrict the data/information you share with websites. It’s also advisable to disable features such as autofill and unsolicited notifications. You should also avoid performing sensitive transactions over your Smartphone. Lastly, make sure your phone has a strong password/passcode. Your personal information should not be at risk if you lose your phone.

Is the Company Director of Swift Money Limited.
He oversees all day to day operations of the company and actively participates in providing information regarding the payday/short term loan industry.

Facebook Planning to Crackdown on Deceptive Payday Loan Advertisers among Other ''deceptive'' Advertisers

Facebook is Planning to Crackdown on Deceptive Payday Loan Advertisers

The hunt for payday loan advertisers isn’t over. After Google’s May 2016 announcement that they were going to ban payday loan ads that met certain criteria, Facebook has decided to do the same.

Facebook has announced that it is going to trace and punish advertisers who bypass its review policies, particularly those advertisers who encourage Facebook users to click on ”phony” links. Facebook intends to use AI and human review processes to get rid of ads which create ”disruptive or negative experiences” for its users. The social media giant has already banned thousands of advertisers guilty of the practice popularly referred to as ”cloaking”.

This financially-motivated marketing technique has seen many bad actors disguise the actual destination of their ads or post links as well as the real URL content taking users to unrelated pages. These actors then generate income from views or clicks with affiliate deals. What’s more is; these unrelated pages host shocking content or scams.

Facebook cloaking is easy. A simple search on Google reveals countless tutorials on how to do it. Cloakers have been getting away with this unethical practice by showing Facebook’s approval team one ad and another totally different ad to the audience that clicks on the ad. Facebook’s new AI and human review processes will help it get rid of this malpractice that usually leaves its users shortchanged in most cases.

According to a blog post co-written by Rob Leathern, Facebook’s product director alongside software engineer, Bobbie Chang, ”we can now observe differences in the kind of content offered to people using apps compared to Facebook’s internal systems. In the recent past, these new efforts have allowed us to take down thousands of offenders misleading Facebook users.”

Facebook has also been on the record threatening to remove all Facebook pages found to be engaging in cloaking. The company has also initiated collaborative efforts with other companies in the industry to discover new and more effective ways of finding and punishing bad actors. These efforts come in the midst of a spam content and fake news crackdown within its walls.

There are also ongoing efforts to make the global digital ecosystem more transparent. Many global tech leaders are also focusing on improving digital experiences for their users. The largest marketing spenders in the world such as P&G and Unilever have also been calling for tech giants to tackle ad fraud.

What motivates cloaking?

There is a clear link between cloaking and making money from clicks as well as page views originating from Facebook ads. Facebook is at the forefront of this problem given the social media site has over 2 billion active users every month which accounts for 42% of the total monthly social media visits globally.

Similar actions

Google had to deal with a similar problem being the biggest search engine in the world. Google’s efforts were, however, more targeted, i.e., the search engine giant was focused on getting rid of payday loan ads which featured high-interest rates (36%+ APR) as well as tight repayment periods (i.e., 60 days from date of issue).

Starting 13th June 2016, Google banned all payday loan ads meeting these criteria. This was a follow-up for a similar ban that saw Google disable approximately 780 million ads back in 2015 for reasons such as counterfeiting, phishing, and obscenity. Google has been hunting for ”questionable” service/product ads for a while now. After getting rid of porn ads, the search engine giant turned its attention to payday loan ads and other high-interest financial product/service ads.

Google has been on a mission to protect its users from harmful or deceptive ads according to David Graff, Director of Global Product Policy at Google. The search engine has already terminated 1,300 advertiser accounts guilty of cloaking. Like Facebook, the search engine’s actions were motivated by external pressure (from consumer privacy and protection groups).

In 2016, Google banned 1.7 billion ”bad ads” for a number of offenses. This included 68 million ads featuring unapproved pharmaceuticals, 80 million ads deemed to be misleading or shocking to users as well as 5 million payday loan ads.

Facebook stopped showing payday loan ads back in 2015. Advertisers have however become smarter using tactics like cloaking which have forced the social media giant back to the drawing board. Any payday loan advertisers among other deceptive advertisers on Facebook today have their days numbered. The new AI and human review process are effective enough to deal with cloaking once and for all.

Is the Company Director of Swift Money Limited.
He oversees all day to day operations of the company and actively participates in providing information regarding the payday/short term loan industry.

How Falls in Real Wages Could Increase Demand for Payday Loans

How Falls in Real Wages Could Increase Demand for Payday Loans

People use payday loans as a means to tide them over to their next pay cheque in a wide range of situations. For example, they may rely on this type of credit if they are short of money to cover expenses such as rent or mortgage payments and food costs, or if they encounter unexpected expenses like car or property repair bills.

More people may be turning to these short-term loans as the pressures on consumers’ finances continue to rise.

Official statistics

According to figures from the Office for National Statistics, when adjusted for inflation regular pay dropped by 0.5 per cent year-on-year in the three months to May. This came after a fall of 0.6 per cent in real pay in the three months to April and a 0.4 per cent year-on-year decrease over the three months before that.

Rising levels of inflation and stagnating wages mean many households now have less, if any, money to spare each month. Inflation hit 2.9 per cent in June, which was up from 2.7 per cent the previous month and was considerably above the Bank of England’s target of two per cent.

With the prices of goods and services increasing relative to pay, more people may struggle to balance their budgets and this could result in an increase in applications for payday loans in the UK.

Public sector workers under strain

Workers in the public sector may be among those who are especially likely to need short term loans. There has been a lot of attention on public sector pay restrictions over recent weeks, with the government under pressure to lift pay limits first imposed in 2011-12. Since a two-year pay freeze starting in 2011-12, rises have been limited to one per cent.

According to an analysis conducted by the Trades Union Congress, firefighters, nurses and border guards may all see their real wages decline by more than £2,500 over the next three years if the pay restrictions remain in place. Meanwhile, the National Union of Teachers suggested that teacher pay has dropped by around 15 per cent in real terms since 2010.

Decreases in inflation adjusted earnings like this could make people more likely to approach payday lenders seeking short-term loans.

Could a payday loan be the right option for you?

Regardless of the sector you work in, if you’re short of money, you might be considering taking out a payday loan. Whether you need cash to cover a particular expense such as a bill or you simply need some extra money to help you meet your general living costs, these loans could offer a solution. One of the benefits of these products is the fact that they can be easy and quick to access, even if you have a bad credit history. If your application is approved, you may be able to receive the money the same day.

However, it’s important to realise that these financial agreements are only suitable if you want to borrow small sums of money. If you’re applying for a loan through Swift Money, you can request up to £1,000. If you require a larger sum than this, you will have to consider other options, for example taking out a personal loan. Also, bear in mind that payday loans tend to have higher interest rates than alternatives such as personal loans and the repayment terms are shorter.

Before you sign up to one of these products, make sure you have shopped around to find the best payday loans on the market. It’s also important that you’re confident you can meet the repayment terms set by the lender.

Sources: 

https://www.theguardian.com/business/2017/jul/12/uk-pay-squeeze-real-wages-tuc-unemployment-ons-figures
https://www.tuc.org.uk/economic-issues/government-must-act-after-three-months-falling-real-wages-says-tuc
https://www.teachers.org.uk/news-events/press-releases-england/public-sector-pay
https://swiftmoney.com/
https://www.moneyadviceservice.org.uk/en/articles/payday-loans-what-you-need-to-know
http://www.bbc.co.uk/news/business-40259392

Is the Company Director of Swift Money Limited.
He oversees all day to day operations of the company and actively participates in providing information regarding the payday/short term loan industry.

How Has The UK Short Term Credit Market Been Revolutionised by The 2015 FCA Price Cap Regulation?

How Has The UK Short Term Credit Market Been Revolutionised by The 2015 FCA Price Cap Regulation?

Since the FCA introduced price cap regulation back in 2015, there have been changes in the short-term credit market.

The latest Social Market Foundation (SMF) report (Click here to download the official report) commissioned by the CFA (Consumer Finance Association) offers the latest assessment on the impact of price cap regulation on the short-term credit market in the UK with a special focus on cost as well as access to loans. The report contains information gathered from industry data as well as short-term credit consumers in the UK.

Considering 6.8 million UK households still live below the poverty line, a significant number of UK households rely on credit. Changing employment and work patterns as well as state benefit changes have also resulted in income instability which has, in turn, increased dependence on credit. Rising inflation and housing costs have also increased the need for short-term credit in the UK.

Let’s not forget the poor saving habits in the UK. A previous SMF research study shows that 40% of UK citizens have less than a week’s worth of income as savings. With this in mind, the health of the UK short-term credit market can’t be overlooked since most people with financial difficulties turn to short-term loans. Considering the FCA price cap regulation is the latest and most significant UK credit market event, how is the market now?

What has changed?

1. Cost of loans

According to the latest SMF report commissioned by the CFA and produced independently by the SMF, the cost of loans has fallen significantly. The latest industry data shows that the cost of loans has reduced by from 1.3% (in 2013) to 0.7% currently. In a nutshell, loans cost less now. It gets better! Loans are cheaper than the 0.8% initial cost cap set by the FCA which is an indication of healthy competition in the industry.

2. Default fees

Industry data also shows that default fees have fallen. The proportion of short-term loan on which borrowers pay additional over and above contractual interest has halved from 16% back in 2013 to 8% currently. In cases where loans are subject to default fees, the total amount of fees including interest charged after default has dropped from £45 to £24. However, concerns linger on whether the fees are still high considering they represent approximately 10% of the value of most short-term loans taken in the UK.

3. Borrower perceptions and experiences

According to the latest SMF survey, consumer perceptions have improved on affordability. Consumers are of the notion that short-term loans have become affordable. 56% of recent borrowers agree that short term loans have become more affordable. Only 43% of borrowers who took out short term loans before 2015 believed they were affordable. Although there are consumers who insist that loans haven’t become affordable, a majority of such opinions can be attributed to the fact that some borrowers assess affordability based on their own ability to service loans.

In regards to experience, most people (90%) feel short term loans are the most convenient source of short-term credit today. Some concerns have however been expressed on repayment. Approximately 20% of all recent borrowers today state that they have problems repaying short-term loans as planned or in time.

4. The size of the short-term credit market (Number of loans sold)

The latest industry data shows that the number of loans sold decreased significantly over the January 2016 to April 2016 period. The loans taken during this time were 42% lower compared to the same period in 2013. Industry experts attribute the fall to a decreasing number of lenders during this period. Many short term loan lenders exited the market between January and April 2016 after finding it extremely difficult to operate in the confines of the new price cap regulation.

5. Access to loans

The FCA had predicted that the regulation would exclude some consumers from the short term credit market more so, lower income individuals. This prediction is consistent with industry figures. The SMF report suggests that access has become restricted. An SMF survey shows that consumers are of the notion that it has become harder to obtain loans. 57% of all consumers who have taken loans before and after the regulation changes state that short term loans have become more difficult to access.

The SMF survey, however, shows that only 16% of people who have tried accessing loans before the regulation, not afterwards, have been denied loans. This is against 18% who haven’t bothered to take loans after the new regulation just because they thought they wouldn’t qualify.

Many consumers still find access to loans important for essentials or avoiding other borrowing channels such as borrowing from family members and friends. According to the SMF survey, 27% of consumers risk going without essentials if they don’t get access to short-term loans. The survey also reveals that 37% of consumers are forced to pursue other credit channels such as borrowing from family and friends if they don’t access credit despite this option being the least reliable and suitable for many.

The rest are forced to cut back on spending, misappropriate funds or rely on alternative or mainstream credit which comes at a higher cost. Some customers also resort to borrowing from unlicensed lenders when they fail to secure funding from licensed short-term credit lenders.

Summary

In a nutshell, the new regulation may have reduced the cost of loans and default fees as well as improved consumer perceptions, however, access to credit has shrunk, and the hardest hit borrowers are low-income individuals. Although the regulation stops exploitation by lenders, which was a huge problem especially in the payday loan industry, some borrowers are being forced into the hands of unlicensed lenders. This is contrary to the FCA’s previous conclusion that the new regulation would be a good thing to low-income borrowers.

The price cap appears to have reduced unscrupulous lending practices among licensed lenders, but there is an increasing number of borrowers turning to unlicensed lenders giving rise to worse problems. Unscrupulous (unlicensed) lenders don’t have to work as hard as before to attract borrowers since access to short-term credit has shrunk among the lower income borrowers. Short term credit lenders in the UK have stricter affordability assessments today which have reduced the number of loans being offered to individuals who are deemed high risk.

Is the Company Director of Swift Money Limited.
He oversees all day to day operations of the company and actively participates in providing information regarding the payday/short term loan industry.