Payday Loans Drop by 25% in Just One Year
A payday loan is a type of loan that offers borrowing opportunities to people who with restricted access to regular high-street means of borrowing. This is typically due to a poor credit rating, which high-street lenders take as proof of poor financial management, and furthermore unworthy of credit with them.
A payday loan can therefore be an alternative for those who have struggled to obtain a loan due to their bad credit history, however still need access to temporary funds. These types of loans should only ever be considered when borrowers are confident in their ability to repay the loan, and are fully aware of the interest rates and repayment plan that come with this.
Payday loans offer short-term loans to these types of borrowers, and have come under great scrutiny in recent years by the UK’s financial watchdog (FCA). This scrutiny has come from the FCA suspecting that certain providers are not in-keeping with the UK’s basic assessments for potential borrower’s creditworthiness. This has led to many investigations conducted by this regulatory body, and have improved the standards of the payday loans sector tremendously.
The FCA’s recent investigations into the number of people taking out payday loans has shown some interesting results, stating that within the UK’s first financial quarter, the number of payday loans taken out had dropped by over 31%. This means the amount of this particular type of loan as dropped from 1,261,120 in 2018 to a shocking 861,781 in 2019.
The total amount of credit recorded as given out in payday loans for just this first quarter is an impressive £240 million. In addition to this, other results collected from the FCA’s recent study shows the number of firms offering payday loans have gone down by more than 24%; dropping from 94 organisations to 71 in 2019’s first quarter. However, there remains a consistent number of brokers comparing products including allthelenders, Money.co.uk and My Financial Broker.
The FCA are focused on improving the standards for lenders throughout the entirety of the country, ensuring that loan providers strictly adhere to the UK’s lending rules and regulations, and that the borrower’s safety and financial wellbeing is protected. The more that lenders work together with the UK’s Financial Conduct Authority, the more efficient and secure lending throughout the country will be.
The fall in number of payday loans has been heavily influenced by the new regulations introduced by the FCA in 2015, which included a strict price cap on the daily amount that lenders could charge. The FCA will be putting a new price cap in place in 2020 for expensive unauthorised overdrafts – and other industries currently under investigation include car finance, guarantor lending and retail finance.
The FCA is the no.1 regulator for the UK financial market, and has described itself in the following way: “Financial markets need to be honest, fair and effective so that consumers get a fair deal. We aim to make markets work well – for individuals, for business, large and small, and for the economy as a whole. We do this by regulating the conduct for more than 59,000 businesses. We are also the prudential regulator for more than 18,000 of these businesses.”
The financial watchdog has furthered this point, stating that it is “responsible for regulating a sector which plays a critical role in the lives of everyone in the UK and without which the modern economy could not function.”