Payday lending is becoming more of a hot topic as the services provided through this industry are used more and more within the UK. This blog will focus on highlighting trends in the payday loan industry and discusses the implications of these for the sector as a whole as well as for individuals and businesses.
Individuals – users of payday loans
One of the most notable trends within the payday loan industry is the sheer volume of cash sloshing around it, which has clearly increased year on year since 2008. In 2008, the payday loan sector in the UK was estimated to be worth just short of 1 billion pounds, and by 2012 this figure has more than doubled to 2.2 billion pounds. Increasingly these trends are also reflected in the amount of money invested in adverting of payday loans by massive organisations like the Wonga brand, one of the market leaders in payday lending.
These figures tell us that more and more people are using payday loan services. They tell us that the advertising of payday loan services is more than likely to be exerting an influence on the average credit customer and the use of payday lenders is becoming more and more frequent and socially acceptable.
Arguably these changes make individuals more vulnerable to cash-hungry executives offering seemingly ‘quick fix’ products. Some charities have argued that these changes make the vulnerable person, more vulnerable, so for example the already poor person is presented with a tempting, but expensive ‘quick fix’ for existing debt problems; the busy, single mum is presented with a new set of temptations, when Christmas is around the corner and the children want extra presents and the inexperienced youth might opt for a payday loan when much cheaper options may exist for them.
Businesses – payday lenders
Scrutiny of the value of the payday loan sector paints a picture of the modern payday loan business as one that is becoming more competitive and more drawn into a saturated market of payday lending and credit providers. This in itself creates pressures on payday lenders to make the most money, stay on top of their game and edge in front of their competitors.
Coming hand in hand with these changes however will be increased temptation to muddy ethical boundaries in terms of what pressure can be placed on a consumer to buy a payday loan product, what lengths advertisers can go to, to promote payday lending products and services and what sales tactics, if any are appropriate to employ in the sale if a payday loan product. As the market for payday loan products expands, so does the pressure on payday lenders to convince the public and government of the value and utility of their products.
Recent trends in the payday lending sector has created an impetus for the government to create new regulatory policies for the industry. Hot on the heels of a self regulatory framework assumed across much of the payday lending industry in 2012, is a new statutory framework for regulation of the industry by the Financial Conduct Authority. Clearly the UK government has taken the position that the surge in payday lending creates a new need for protections for consumers of payday loan products.
The future of the payday lending industry
What is yet unclear is the implication of increased oversight and regulation within the industry. Some argue that trends associated with increased oversight in this industry are already evident, and the increase in oversight within the area may be related to increased use of illegal money lenders.
Clearly, it is early days in which to speculate as to what the impact of renewed oversight in the payday lending industry will be, however hot future issues are likely to include:
(i) the impact of oversight on payday lending profit margins
(ii) debt levels
(iii) use of illegal money lenders
(iv) the financial cost of oversight of payday lenders
(v) the cost of social problems like debt for the government
Have you been affected by any of the issues raised in this blog? Have you ever used a payday lender? If so, what was your experience like? Comments are particularly welcome on the topic of regulation within the industry – should the government continue to intervene in regards to payday loans and lending, or should they back off and let people have more freedom to choose?