Since Apr. 2014, the Financial Conduct Authority (FCA) in the United Kingdom has been instituting tough new regulations and enhanced oversight of the consumer credit market, which includes payday loan lenders. When the FCA took over regulations last year, it handed out temporary licenses to 50,000 such firms, and now it’s seeking applications for full-time licenses.
The result has been thousands of consumer credit agencies, including those same payday loan lenders, exiting the British market as they will be burdened with greater rules and regulations.
According to the London Telegraph, more than 5,000 private firms have refrained from applying for a full license. In fact, many of them have already closed their doors prior to applying for a license.
Many of the enterprises to have not submitted an application include bad credit loan lenders, debt management firms, log book lenders, credit brokerages and credit repair services.
Approximately 17,000 consumer credit establishments were required to file an application by Apr. 1 of this year. However, precisely 5,172 did not submit an application, which means they’d be shut down. Moreover, just under 7,000 unlicensed credit companies applied to enter this sector of the British economy.
Although roughly 12,000 businesses have been given approvals from the FCA, 97 percent of them were given just limited authorization. This means the financial aspect is not a major portion of the overall business. It could reportedly consist of car dealerships with financing options or dentists providing payment plans.
For the payday loan lenders that have filed a license application, it’s believed they will wait as long as a year before being given the OK from the FCA.
Prior to the entire process, the FCA had predicted that there would be a 99 percent decline in this area of the economy. Indeed, since the FCA imposed an interest rate cap, the payday loan volume has dropped 70 percent, notes the Consumer Finance Association (CFA), an industry organization representing payday loan lenders.
One City Council Entering Payday Loan Industry
In order to combat the rise of bad credit loan websites, Sheffield’s city council is offering payday loans of its own. The local officials will be providing loans to the city’s poorest residents, in a program that would be worth £20 million ($31.1 million). This would serve as an alternative to the likes of Provident Financial and Wonga.
Called Sheffield Money, the new financial services entity will be supported by city council and regulated by the FCA. It pledges to give loans from its website in just 15 minutes. It’ll also maintain a city center money store where people can apply for loans. There’s a phone application service, too, for customers who can’t visit in person.
Sheffield Money will have interest rates starting from 49.9 percent to as much as 89.9 percent, far lower than the average 272 percent 12-month loan.
“Payday and doorstep lenders have been ripping off and exploiting some of the most vulnerable people in our city, preying on their need for available credit and charging extortionate interest rates. Sheffield needs to be able to offer these people a fairer option which will stop them being forced to go to these notorious lenders