Over the past year the high cost credit industry has gone through significant changes. There’s a renewed focus on making sure that those borrowing from high street payday lenders can actually afford to do so. Also reducing costs and interest rates have resulted in rules with serious implications. These rules could make it difficult for high street high cost credit firms to continue.
What are the forecasts for high street payday lenders?
People, such as Dr John Gathergood of the Nottingham School of Economics, have made interesting forecasts. He’s gone as far as predicting all high street payday lenders will go out of business with the new rules.
High street payday lenders tend to have higher costs than online lenders. This means that they’re not able to offer the same discounts on interest rates. A major change of the new rules regime is a cap on the interest rates that high cost credit firms can charge at 0.8% per day. Resulting in amounting to an annual rate limit of 292%.
Experts like Dr John Gathergood have predicted this will be too low for high street lenders to absorb. He believes the result will be that profits of high street lenders will fall, with many going out of business. Others believe that the figure is likely to be more like 75% that will go out of business over the coming year.
Are there any further changes?
This is not the only new change introduced that could affect the balance books of payday lenders. This includes default fees charged by lenders for missed loan repayments. They cannot now exceed £15 and there are limits on the number of roll over times for the loan.
In the past this could have continued on an ongoing basis. These high street lenders were able to charge extra fees and interest each time. But now rollovers can only go up to two.
Lenders are also now required to sign up to a comparison website. Resulting in borrowers clearly seeing all the options. This is something that might prove to be an extra expense for high street payday lenders.
Some argue payday loans have been an essential tool for consumers during the recession. They’ve provided extra funds when there is a cash gap between monthly budgets and the next payday. While some voices express concern over the changes, most in the industry see this as a way to make the system better for consumers. Something that can only be a good thing.
Many lenders believe some high street lenders have been too aggressive with collection methods. They feel this effects consumers in a bad way and should not be a part of the industry. The reputation of payday lenders should improve once those who aren’t operating well leave the industry.
With 19 lenders leaving the market last year alone, many more could well follow. It will be interesting to see what the high cost credit market will look like over the next 12 months.