Over the past few years, the payday loan industry has expanded to the point of being a multi-billion pound concern, with new companies springing up to offer short term loans. The success of payday loans, and their resulting controversy, comes down to the ease by which borrowers can take out short term loans with high interest charges. Most payday loans will average out at between £50 and £1000, with the average APR set at over 1000 per cent. Criticism of the success of payday loans has focused on borrowers going into debt without understanding the extent of their repayments, as well as on misleading advertising. As a result, the future of payday loans is currently under scrutiny in terms of potential regulation and the need for reputable lenders to stand out within a crowded market.
From April 2014, payday loans will be regulated by the Financial Conduct Authority, having previously been examined by the Office of Fair Trading on a company by company and general basis. Regulatory pressure has been created by groups and politicians that want payday loans to cap their interest and charges, while others have suggested that payday loans shouldn’t be advertised in certain places like universities, or promoted as a way to cover a social life, rather than emergencies.
This enhanced scrutiny has already meant that some payday lenders are having to change their practices, or buckle under the weight of demand and stretching too far. Recent payday loan casualties have included Speed-E-Loans, which has had to cease trading after being unable to meet its funding goals. Eleven payday loan companies have also recently had to switch from short term loans to other financing offers after being criticised for their practices.
The online future of payday loan companies is also coming under some pressure, with updates to search engine algorithms meaning that fake and disreputable payday loan companies that try to flood users with spam links are being punished; clamp downs on payday loan companies that try to substitute quality information and reliable loan procedures for spam marketing should hopefully thin out opportunist companies that take advantage of the current demand for cash loans.
Despite these problems, the future for payday loan companies that abide by rules and continue to deliver a quality service is likely going to be a positive one. For example, a reputable payday lender like SwiftMoney will continue to take your application for a loan and find the best and most reasonable deal from multiple lenders, enabling you to get the most out of the market without being caught out by high charges or offers that are too good to be true.
In this context, the importance of customer charters and transparent terms and conditions is likely going to increase as borrowers look to payday lenders that they can trust, and that aren’t going to mislead them with their advertising. SwiftMoney’s Customer Charter is particularly notable here for offering examples of a commitment to customer safety, as well as links to complaints bodies like the Financial Ombudsman.
Looking ahead to the next few years, the value of payday loan services will depend on changes to the wider economy, as well as to the cost of living and inflation. At present, payday loans represent an excellent short term option for emergencies, but have to be taken out with an awareness of repayment schedules and interest charges. Knowing these terms and conditions, and being aware of what a payday loan will cost you, means that you can compare the market and find responsible payday lenders without getting into serious debt.