How Are Payday Lenders Dealing with Industry Decline?
Short-term or payday lenders as they’re better known, like Estate Agents, perform a necessary function. Your boiler or car can usually sense when the worst possible time to break down is and act accordingly. Then what?
Contrary to popular financial advice, most people don’t have any savings or the savings they do have are inadequate in emergencies. Research from the Social Market Foundation (SMF) and Money Advice Service has shown that 40% of people have less than a week’s worth of income to rely on.
Businesses need money quickly too and not many repair services offer extended payment terms or credit. Cash is king and for a lot of people the quickest solution is one of the UK’s many payday lending services.
The Consumer Finance Association is the trade association for the short-term lending sector in the UK and they commissioned a wide-ranging, state-of-the-nation report from the SMF on the sector in 2016 called A Modern Credit Revolution: An analysis of the short-term credit market and, maybe because it’s supposed to, it challenges a lot of misconceptions about the industry.
Some of the more interesting findings include:
- The number of loans taken out from 2013 to 2016 reduced by 42%
- The average cost of financing loans reduced from 1.3% in 2013 to 0.7% in 2015
- Over a quarter of respondents – 27% – said they’d have gone without essentials without access to a short-term loan. 37% would’ve borrowed the money from family or friends
- The average customer in 2015 was from the higher-income brackets rather than lower-income
- 80% of respondents agreed that “a short-term loan was the only option available to me”.
Yes, the interest is high if a loan is taken out for an extended period and there are always questions about safeguarding people from inappropriately large borrowing but these unsecured, short-term financial products meet the needs of a lot of customers.
Many of whom are only borrowing from these companies because traditional funding sources such as high-street banks can’t or won’t help those customers out when they most need them to.
Despite this, the payday loan industry isn’t going to win any popularity contests and they’re probably fine with that but even they have rights and they can be subjected to unfair challenges or campaigns against them.
As the 29 August deadline for PPI claims approaches, many claims management companies (CMCs) have begun to look for their next target and seem to have chosen the payday loan industry to provide it.
The CFA said it has seen worrying tactics from CMCs targeting payday lenders by flooding them with complaints from lenders. One company received 1000 complaints from a CMC in 24 hours and they’ve got evidence that some are making complaints without permission of individual lenders and breaching data protection legislation.
Elevate, the owner of payday lender Sunny, said that in the last six months of 2018, they received more than 2,500 complaints from people who were not even Elevate customers. These complaints sometimes included personal information and in some cases a person’s employer and bank details.
They also received 21 complaints from customers who were unaware a complaint had been raised in their name or that a court action against Elevate had been undertaken. CMCs also lodged 204 complaints about cases that had already been settled.
Elevate also reported seeing an unusual pattern of behaviour surrounding new parts of the General Data Protection Regulation (GDPR) to send data subject access requests (DSAR) on behalf of their customers.
Under the law, anybody is entitled to access all data that a company holds on them and a DSAR is the method of obtaining this personal information. Elevate claim that some CMCs are making these requests without the knowledge of their clients in order to gain the private data which could then be used for profit.
In 2018, Elevate received 4,185 DSARs. Another lender received 500 in a single day while a different one received 250 in an hour.
CMCs help people reclaim money clients might not have otherwise gained, but they don’t do it for free and every debt management charity or consumer advice service recommend that people manage their own claim procedure.
The battle between Payday lenders and CMCs shows that even if you run a perfectly profitable business, unexpected and expensive problems can pop up from anywhere and cripple even the most prudent company.
We’re always standing by to offer a free consultation to any company that runs into trouble. Our expert staff can discuss all the options available to you depending on your unique circumstances.
We won’t apologise for our high interest level in saving your business and we guarantee that we’ll explore every avenue to achieve the best possible outcome.