Last Friday saw the collapse of the UK’s largest payday lender QuikQuid, following a raft of customer complaints and compensation claims. The company announced it was quitting the UK market “due to regulatory uncertainty” with the business owners failing to reach an agreement with the Financial Ombudsman Service on issues relating to compensation.
But, while consumer groups may be celebrating, there are also concerns that less choice in the sector could make life even more difficult for those with little access to credit.
QuickQuid was a brand owned by CashEuroNet UK and its other brands, which are also now in administration, including payday lender Pounds to Pocket and installment loan provider On Stride. All three were subsidiaries of US-owned Enova, which has agreed a one-off charge of £58 million, with £33 million of this to support the business until it exits the UK.
But, is more rigorous regulation responsible for killing off this country’s payday lending industry? QuickQuid follows hot on the heels of Wonga which collapsed in 2018. This year also saw the demise of Instant Cash Loans Limited – it owned The Money Shop, Payday Express, Payday UK and Ladder Loans brands.
Yet although payday loan providers are shrinking in number, they have not disappeared altogether. Those that remain though face an ongoing threat, not only of the tougher regulatory regime, but also whether they are able to withstand customer complaints.
An explosion of complaints
From the early payday lending days, customers are now far more aware of their rights to complain and they are also being encouraged to do so by claims management companies.
It was reported that CashEuroNet UK had more than 3,000 complaints within just the first half of this year. Many of which had complained that it had been too easy to borrow money, which was then impossible to repay – it has also been reported that the total number of complaints from previous years could have exceeded 10,000. Broadly speaking, the Ombudsman upholds a majority of payday lending complaints – typically well over 60% – and so the problems for providers are clear.
While QuickQuid was apparently making offers of compensation, it is understood that many customers would refuse these and instead escalate the complaint to the Ombudsman, which would often lead to the lender having the payout significantly more. The difference could be substantial, with the BBC citing that in one instance a customer was offered £50 compensation from QuickQuid and then £2,000 via the Ombudsman.
The tougher regulatory regime has been ramping up over the past five years, from both the Financial Conduct Authority and the Competition and Markets Authority. Lenders were forced to appear on at least one price comparison site from 2017 and from 2015, caps were imposed on costs, which meant customers would pay no more than 0.8% of the amount borrowed a day and the total cost (including fees and interest) was capped at 100% of the original sum. This meant borrowers would never have to pay more than twice what they borrowed. Default fees were capped at £16 and lenders were also blocked from being able to request a customer’s bank details or take payment from their account without explicit consent, along with enhanced affordability checks becoming mandatory.
The FCA is due to report on its investigations into payday lending and whether regulation and a smaller market could be forcing more to resort to loan sharks. The Consumer Finance Association, the trade body for payday lenders, had reported back in 2017, that the price cap has already resulted in an estimated 600,000 fewer consumers having access to credit.
There is plenty of guidance for those who are facing financial difficulties as well as alternatives options available, including arranged overdrafts, credit unions and other similar payday lenders, but there is no single solution. The sector lends itself well to the FinTech sector and one company Savvy.co.uk, says it offers “an ethical alternative to payday loans” with customers, who are likely to be in more difficult circumstances, able to borrow if they can meet the criteria through a fast, online process. Another option is Creditspring where fees are payable and amounts of either £250 or £500 can be borrowed twice – the cost of the fee which is £8 a month replaces interest.
The payday loans sector developed because there was a need to borrow and that has not gone away. QuickQuid may have gone but its departure will do nothing to alter the fact that many people still remain in need of a short-term financial fix.