As 2016 draws to a close, Cash lady reflects on what has happened in 2016 and some of the key moments to have affected payday loans 2016.
When the FCA replaced the FSA back in April 2013, the newly formed body made short term lending a key priority.
The short term lending industry and many of the most well known payday loan providers had a tarnished reputation. Especially amongst the general public for many poor lending practices.
Any company (including Cash Lady) had to apply for their FCA authorisation. More so if they wanted to continue operating as a financial service business.
The process for many took a good couple of years and in 2016, full authorisations were given to firms who had passed the FCA assessment. Those who were able to demonstrate best lending practices were also given authorisations.
As a result, many companies offering short-term credit could approach 2016 with renewed confidence. This was regardless of whether they were a lender or broker.
Google’s payday loan ruling
Back in June, Cash Lady wrote an article about Google’s new ruling about the payday loan sector.
They announced in May that they would no longer allow payday loan adverts to be shown on their Google Adwords platform from July 13th, 2016.
Many people cheered this decision, but others were not so sure.
The fact of the matter is Google have single-handedly managed to transform the landscape of the payday market. Perhaps they have done this even more than they originally thought.
The decision of what forms a ‘payday’ product is (in Google’s eyes) any loan product that must be paid back in 61 days or less.
Anybody wanting to advertise on Google would not be permitted to do so. Particularly if their website promoted a short term ‘traditional’ payday product. For example, a loan payable within 30 days would not be permitted to use Google’s well-known advertising platform.
Payday loans 2016: product changes
Whether a direct result of Google’s new payday ruling (or at least in part), we can never be completely sure. But, 2016 certainly saw many of the best known payday lenders develop new short term loan products.
Others simply evolved their existing product offering to offer loans from 3months or more.
With FCA price caps in place, the total amount of money paid back could never be more than double the loan (even if the loan term was 12 months+ and at a high APR)
What this has meant are 3 things.
- Short term and specifically ‘payday loans’ are evolving into more mainstream lending products.
- HCSTC (High Cost Short Term Credit) providers are looking closely at applications to ensure affordability over longer periods. This may mean lower acceptance rates.
- Customers who genuinely need a ‘short term loan’ to cover an emergency, are often presented with loan offers of 3 months (or more). These may not always be the most appropriate product for their needs.
Of course, almost every short term loan company will now allow customers to pay back their loan early without any fee or penalties. But this would require discipline which many borrowers struggle with.
Also, there are more options for customers to consider revolving credit/line of credit type products. This is where borrowers have a limit to how much credit is available. They can use this in a similar way to a credit card or authorised overdraft.
Payday loans 2016: Interest rates
Along with new innovations into the short term lending market in 2016, many lenders now offer lower interest rates. In most cases, this is in a bid to become more competitive.
Drafty’s representative APR is just 89.7% APR and Safety Net Credit offer 68.7%. As a result, they look far more attractive than some interest offered by the more traditional payday loan providers.
We expect many payday loan providers to further reduce their rates of interest in 2017. This is to offer customers a more competitive product and a better experience.
Payday loans 2016: Customer refunds.
Before the FCA took over from the FSA in 2013, many payday loan companies acted in an improper fashion. Often they lent money to customers without carrying out enough affordability checks.
Here is a list of companies asked to compensate those customers
Cash Converters had to pay back millions of dollars, ($10.8m) after the Australian Securities and commission investigation
Motormile were asked to pay back an eye watering £414m to over 500k customers after a city watchdog stepped in.
Payday loan company CFO agreed to pay more than £34m after 97,000 customers were found to have received unfair treatment.
Payday loans 2016: Companies no longer trading
In January this year, Cash Genie went into liquidation after a £20m fine by the FCA. This was after an investigation learned that 92,000 customers had been a victim of unfair practices.
CFO Lending traded as; Payday First, Flexible First, Money Resolve, Paycfo, Payday Advance and Payday Credit.
Payday loans 2016: Summary
The landscape for short term lending in 2016 has evolved considerably. In many respects, the term ‘payday’ no longer fully represents what the industry provides.
Short term credit remains an important product for millions of people who need short term solutions to a problem. More importantly, when a larger loan of £1000+ is simply not suitable or appropriate.
With many lenders now offering minimum loan terms of 3 months, it is imperative consumers are educated about their options. In order to have the ability to pay back finance early to reduce the cost of their loan.
It is also equally important that customers do not borrow more than they need. Particularly, when the longer loan periods may reduce their monthly repayments.
Many lenders are having to pay back compensation this year (following similar rulings in 2015). Payday and short term loan providers are aware they must act ethically and professionally when lending to customers.
Proper and rigorous affordability checks need to be at the forefront of everybody’s mind.
With the dust settling on 2016, 2017 should be in a much brighter position. Fully authorised and regulated lenders representing a much transformed sector.