UK Payday Borrowers Turning to Loan Sharks

Borrowers could be turning to illegal “loan shark” lenders because of the “severe restrictions” imposed on payday lending by the Financial Conduct Authority (FCA).
July 23, 2015 - PRLog -- The Consumer Finance Association (CFA), which represents a string of lenders including The Money Shop and Payday Express, reported that short-term lending has dropped by almost 68% in the past two years.

In a report to MPs, the CFA said that 80% of loan applications were rejected; of those

4% went on to borrow from illegal lenders instead, the CFA stated.

The CFA report also suggests that, as result of the new regulations, the number of firms operating in the market has dropped from 240 in 2013 to about 30 to 40. It said supply was being "severely restricted" as lenders left the market or tightened their affordability checks. Only those with the best credit records were being granted loans.

Russell Hamblin-Boone, chief executive of the CFA said "Our analysis of hundreds of thousands of loan applications proves that borrowers are being excluded from credit and concerns are growing for how they are filling the gap in their finances."

"It is time to draw a line under the attacks on short-term lenders, recognise the huge improvements in lending and accept that we have a highly-regulated, legitimate market to keep people out of the hands of unscrupulous, illegal lenders."

John O'Hara, founder of online short-term loan broker ( said. “We come across illegal payday websites operating in our space every day, so it's not inconceivable that borrowers, who can't find the help that need from licensed companies, are falling into the wrong hands.”

However, the Citizens Advice Bureau (CAB), argue that the new regulations have reduced the the number of payday related problems, stating that it had seen a 53% reduction in issues recorded for the period April to June compared to the previous year.

Gillian Guy, chief executive of the CAB said "High-cost credit is not the answer to financial difficulties."

"All too often payday lenders were lending to people to who could not afford to repay. The 53% decrease in payday loan issues reported to Citizens Advice shows the new regulations are having a positive effect for consumers."

Peter Tutton, of StepChange debt charity, said: "Tighter regulation on payday has not made other kinds of debt worse. Firms have themselves acknowledged that the market needed to change."

2015 Payday Price Caps

In January 2015, the Financial Conduct Authority (FCA) introduced a number of price capping measures, limiting what payday loan companies could charge for high-cost credit products.

Initial cost cap

When loans are taken out or rolled over, the interest and fees charged must not exceed 0.8% per day of the initial amount borrowed. This means that lenders will only be able to charge a maximum of 80 pence per day, per £100 borrowed - a £100 loan taken out over 30 days would cost a total of £124 to repay, including £24 interest.

Default fees

If borrowers default, fees must not exceed £15. Lenders can continue to charge interest after default but not above the initial rate of 0.8% and subject to the total cost cap.

Total cost cap

Borrowers will never have to pay more in fees and interest than 100% of what they borrowed. This means that if a £100 was borrowed, the maximum that could be charged by the lender, under any circumstances, would be £200.


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