With the tough new rules recently imposed on payday lenders, many have decided not to continue. But who will fill the gap left by their absence?
As expected, the new rules imposed by the FCA, or Financial Conduct Authority, have virtually scuppered the payday loan industry, perhaps for good. Figures released just this week show that many of the biggest payday and short term lenders have decided not to continue offering quick, high-cost loans. This seems to suggest that many of these companies have decided that they cannot make a good enough profit under these new restrictions, and have decided instead to close up shop. It seems to many as though the game is finally up, and it will be very encouraging to those who have stood against predatory lending in this sector for a long time. Though, many have suggested that this opens the gates for new threats to borrowers.
The payday loan industry is such a huge sector and accounts for so much of the recent debt, that something will have to fill the void. It’s likely that opportunistic lenders will yet find a way around the new regulations imposed by the FCA, but time will tell whether these sanctions will actually help the average borrower. Many experts have warned that, while payday loans had their pitfalls, it was in fact a legal industry and one recognised as a useful option for borrowers. The fear among experts is that this market will be replaced by lenders that are unregulated or illegal, and are likely to practice predatory lending. With those that rely on payday loans to get by having no other option but to turn in that direction.
Already, there are some alternatives to payday loans that offer short-term borrowing at an affordable rate. ClearAccount is one of these companies and, while based in the UK, it is likely that similar companies are now taking root in the US. Indeed, it markets itself as “the clear alternative” to payday loans, the difference being that the cost of the loan is set at a small amount each day with no clearly defined repayment date. Of course, this kind of setup will appear appealing to some who are looking to right short-term problems, but in reality it offers nothing more than the same trap that we now associate with payday lending. Time will tell whether companies such as ClearAccount will be successful, or whether they too will suffer the wrath of the FCA.