Payday UK and Payday Loans

Payday Loans have been in business without facing any form of regulation for far too long. This has seen their unprecedented rise which has brought about the rise of an even more unstable economy. There have been speculations circling around the complete elimination of this industry, which could see just 4-5 payday lenders left from a pool of almost 400 payday lenders currently operating in the industry. Companies like Payday UK, Lending Stream, and Speedy Cash are some of the lenders who don’t see a profit in being in this industry and as a result, will gradually transition out of this business.

Some of the reasons why lenders are considering moving out are because of the strict cap that has been placed on them in terms of interest rates and fees. With a drastic difference from the exorbitantly high interest rates that came with these types of loans, the Financial Conduct Authority has put a maximum cap of 0.8 per cent per day on these loans offered.

In addition to that, the default charges and penalty fees that did not have a limit earlier and most notoriously dependent on the variable market rates have now been placed under a strict cap of 15 pounds per 100 pounds on any amount that the borrower opts for.

This has been welcomed by authorities as well as borrowers, as this was leading many people into the cycle of debt, which was seeing hundreds of thousands of a vulnerable population perishing to the uncertainty of these institutions. 

Moreover, this has been a greater emphasis that is being placed by authorities to shift borrowers to more stable and less risky lines of credit, so as to avoid any kind of malpractices. This is seeing the rise of credit unions, non-profit organizations and many such institutions that can now replace the payday lending industry.

Interestingly enough, many of the conventional banks have recently stated that the demographic that is dependent on these payday lenders also come under their target demographic, which shows how unaware the borrowers are, in the area of fiscal knowledge. 

On the other hand, many experts have also claimed the “invisible” presence of these major banks in the payday lending industry as numerous surveys have found these payday lenders like Payday UK being financed upto almost 38% of their operations by these banks. Once the authorities stepped in, these major banks bowed out of the industry but not before creating a huge ripple in people’s disposable income.

In addition to that, these banks, realizing the potential profitability of this industry, formed other means of interacting with borrowers through the appointing of middlemen who claimed to have no direct link to the major players, but were playing an active role in this industry. Ever since the caps introduced by the FCA, it has seen most of the players leaving the industry barring a few major players who have agreed to stay on, respecting the ethical standards set by the regulatory body.

It has been observed through several studies that many of these payday lenders are extensions of major banks and financial institutions. This essentially means that these payday lenders are a front for these major banks that are responsible for only handling the collection and the application process and the loan is actually given by these banks. The state usury laws are also one issue that has been bothering critiques of this industry. 

For example, in most of the states in the US (where this industry was thriving), where they found that the laws restricted the interest rates they could charge on one loan, they started exporting their interest rates to states where the laws were not so strict, provided they were present in those states. If they were controlled by banks, the banks would simply do the exporting so that it was easier to manipulate the market.

For payday lenders who did not have a store outside one state, they would affiliate with payday lenders in other states or sell their business to those lenders, in order to ensure continued profit. However, states soon realized that the cap on the interest rates were in their hands and once they saw the state of distress this was leading borrowers to, they decided to confine the interest rate to a strict 15% on every 100 borrowed. This has seen the start of many regulations that are needed to run this industry.

One of the main concerns for payday lenders like Payday UK and others is the fact that there might be a serious encroachment on their customer base, if banks were to deal directly with the customers. This would ideally mean that banks would not needpayday loans lenders to offer cash advances to the customers and since banks have a much larger customer base than payday lenders, this could serve as a benefit to the borrowers.

There have been banks like the Wells Fargo Bank that has stepped up the initiative on these practices. They are offering a scheme called as the “Direct Deposit Advance” which they are supplying only to customers who have a direct account with the bank. This includes giving loans of the amounts ranging between 300 pounds to 500 pounds with a relatively lower interest charge of 5 pounds on every 100 pounds and would be automatically deducted from the next time you deposit money into your account. 

Since these banks deal only with their customers, there is less chance of malpractice, there is a sense of security amongst the borrowers and it also brings confidence in the minds of the borrowers knowing they will not have to pay additional interest charges.

By allowing this practice, this also filters the demographic applying for these loans. Since the borrowers would be people with a valid bank account, there would be no need for credit checks and these loans could be offered to people for the purpose for which they should be used and that is during emergencies. This is a practice that should be encouraged by the critics and supporters alike.

For more information go here:

www.paydayuk.co.uk

Thank You