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Published on July 8th, 2014 | by FinanceLoophole


Payday loans are big business in the UK

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In 2011–12, the payday loan market was worth between £2.0 and £2.2 billion, up from an estimated £900 million in 2008–09. This rapid expansion has been accompanied by a significant rise in the number of people experiencing serious debt problems as a result of using these products.

There is a lot of opinion against payday loans and the companies who provide them. There is no denying that there are many people using these loans in the UK. The trend appears to be that more and more people are taking out these loans and that the amount of money being paid out in payday loans is increasing. The amount of people who are rolling over payday loans and taking out new ones is on the rise as well. Perhaps the recently introduced payday loans rollover legislation will put an end to this – we will see….

There are no up to date figures available, but in 2011/12 8.2 million payday loans were taken out in the UK. It was estimated that in 2009, 4 million payday loans were taken out by 1.2million people this meant that on average, every person taking out a payday loan was actually taking out 4 loans in total. The 2013 Office of Fair Trading (OFT) review found that around a third of loans are repaid late or not repaid at all. The OFT also found that debt advisers reported that borrowers seeking help with payday lending debts had on average rolled over at least four times and had six separate payday loans.
If people are regularly finding themselves short of money at the end of the month, there has to be a concern that they are living at a higher standard than their income will support. This is where it would be better for people to address more long term issues rather than look for a short term fix. This is much easier to say than do. Many people find themselves looking at payday loans due to spiralling out of control into debt due to external factors making their financial situation difficult where having a helping hand can make a massive difference when it comes to making ends meet on a regular basis.

Financial Conduct Authority (FCA) regulation of payday loans companies

Regulation of the payday loans marketplace has transferred from the OFT to the FCA as of 1st April 2014. A recent press release from the FCA about the proposed changes to the regulations they want to introduce should allow the FCA to provide stronger protection and better outcomes for consumers than the existing OFT regime did. There will also be tougher requirements for payday lenders, including a mandatory affordability check on borrowers, limiting the number of loan roll-overs to two, and restricting (to two) the number of times a continuous payment authority (CPA) can be used. There will also be tighter restrictions on what payday lenders can say in adverts, while the FCA will be able to ban any that are misleading.
At the end of 2012, there were close to 250 different firms providing some form of payday loan in the United Kingdom. It was believed that the top 50 lenders provide the vast majority of loans and the bottom 200 in the market provide a very small amount of money. There is a strong mix of high street payday loan lenders although there is a growing trend to find online payday lenders. These online firms have tended to be more expensive than their high street counterparts.

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While many people are calling on an end to the payday loans market, this is not likely to happen in the near future. The size of the industry and the number of firms operating in the market ensures that this is a market that will continue to grow.

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