UK Payday Lenders Call it Quits in Anticipation of FCA Regulations
On April 1, 2014, the Financial Conduct Authority (FCA) assumed the authority of the Office of Fair Trading (OFT), adding 50,000 new consumer credit firms to its remit. Approximately 210 payday lenders are included among the new covered entities. These firms have been the subject of intense scrutiny in recent months from politicians, consumers, regulators and the media. In response, the FCA has proposed strict new caps on the cost of credit provided by payday lenders to become effective in 2015. In July, the FCA will take the next step towards implementation by publishing guidance on the upcoming regulation.
It appears, however, that many United Kingdom (UK) payday lenders have already deemed the regulations untenable. The Financial Times reported that more than one-third of all payday lenders declined to renew their lending licenses under the FCA. When combined with the 30 payday lenders that have had their licenses revoked since 2013, the figures total to a loss of approximately half of the payday lending market.
Among the firms exiting the market are some of the UK’s largest payday lenders. Last week, Cheque Centre and Quick Loans Dot UK announced that they would not longer offer payday loans, both citing mounting regulatory demands. Wonga, another one of the biggest UK payday lenders, appears committed to maintaining its business, but faces constant public criticism, which has prompted the company’s Chairman to resign. Considering that that the new regulations are a year away and payday lenders are already calling it quits, it is likely that the UK will see a major reduction in the availability of short-term consumer credit. Opponents of the new regulations argue that the exit of legitimate payday lenders may force consumers into riskier areas of unregulated or illegal lending.