Research Suggests Payday Loans Safer Than Ever

While no loan is ever truly “safe,” payday loans in particular have a reputation for being more dangerous than other lenders. But is it earned?

According to a report commissioned by the Consumer Finance Association (CFA), the percentage of payday loan customers suffering additional charges on their debt has sharply fallen since the launching of stricter new rules, designed to clamp down on predatory lenders, and limit consumers’ ability to get themselves into trouble.

These rules include several safety regulations, which have had a variety of effects. Since the measures’ passing, payday lenders must require their customers to undergo a significantly stricter affordability check, as well as a government-mandated cap being placed on the overall cost of payday loans. Introduced in 2015, these caps are intended to halt the “downward spiral” of fees, keeping things from getting out of control.

Conducted by the Social Market Foundation (SMF), the research discovered that the percentage of loans in which consumers were hit with extra fees (such as those for late payments) on top of their contractual interest has been effectively halved – plummeting from 16% back in 2013, to 8% at the time of the study.

Additionally, research suggests that the so-called “cost cap” on loans has had the desired impact; a consumer who borrowed £200 over the course of 30 days would pay roughly £36 less than they would have in 2013, given the current market averages.

The Study

The firm’s study collected data not only from short-term lenders, but also carried out additional survey research on the consumer element, speaking with more than 1,200 payday loan consumers. And what they found supported a long-held belief regarding the payday loan industry; namely, that they’re providing a much-needed service, one that is likely to be filled regardless of their existence.

The survey found that about one in sixteen (6%) of payday loan consumers said that if they had not been able to access a short-term loan, they would have instead turned to an unlicensed lender – who is not a family member, nor a friend – to meet their needs.

Nigel Keohane, the director of research at the SMF, warned policy makers to remain vigilant regarding the potential risks of those citizens who might be excluded from the more conventional market.

Additionally, the study discovered that the average loan size has increased by £11 over the course of the study, rising from £245 in 2013 up to £256 in 2016, without a commensurate rise in unexpected costs, such as late fees. According to the research, the typical consumer of a payday loan likely earns somewhere in the neighbourhood of £20,000 to £25,000, is a male between the ages of 25 and 39, and is employed full-time.

The Crackdown

The Financial Conduct Authority (FCA) – the governing body which created and implemented these tougher standards for payday lending businesses – had made it plain that they intended to put “high cost loans” under some very bright lights. These were understood to include overdrafts, door-to-door lenders, lien or “logbook” loans – where collateral such as a consumer’s car is put up as security against the loan – as well as payday loans.

These stronger rules for high-risk loans – which again, include payday lenders – were set into motion following an increase in protest and outcry from debt-focused charities, who spoke of witnessing borrowers sliding into debt spirals, and attempting to staunch the bleeding with payday loans – ultimately making things worse.

And while no industry is going to celebrate having to meet new regulations, the CFA – who represent short-term lenders – is encouraged by the positive trends among their customer base, crediting these high industry standards as leading to better outcomes for their consumers.

New research has shown that many high street banks are charging a lot more for unauthorized overdrafts on accounts than the interest charged by payday loan providers. Payday loan providers are regulated by the FCA, and in many cases they work out a lot cheaper than dipping into an unauthorized overdraft given by a bank account provider.

What Is a Payday Loan?

Payday loans are instant forms of borrowing money. They are suitable even for people with bad credit, and people can apply for a loan and find out instantly whether they’ve been accepted or not. There are normally no fees to pay with payday loans, only the interest charged.

Payday loans have received quite a lot of bad press due to the high interest rates they charge those who borrow from them, but reputable companies tell the lenders exactly how much interest they will pay on money borrowed for a specific amount of time so the borrower is always given all the information required to make the decision before they take out the loan. With the new shocking statistics from Which? about the amount of money that banks are charging, it seems as though payday loan providers are going to become a lot more popular with consumers.

Which? have conducted research into the amounts paid by people when they use an unauthorised overdraft facility provided by a bank. They found that people who borrowed as little as £100 could be charged up to £180 by their bank for using the overdraft, compared to the £24 that payday lenders are capped by the FCA. This is a huge £156 difference in charges, and with this research it’s not hard to see why payday lenders are becoming more and more popular. This amount of money is substantial, and it goes a long way to explain why people are struggling so hugely if they use an unauthorized overdraft facility provided by their bank.

Which Banks are the Most Expensive?

Throughout the study, Which? determined that the most expensive bank in relation to charges for £100 borrowed for 30 days was Natwest – their fee was £180. The second most expensive lenders were Lloyd, TSB and Santander who charged £160. Which? approached these institutions for comment, and they were told that while the charges were high, they did offer their customers many ways to manage their money more effectively and that they encouraged their customers to get in touch with them as soon as possible if they were going to struggle financially. However, these comments do nothing to explain why the fees they charge are so ludicrously high.

Many people find that they are unable to get overdraft authorizations from their banks, which is why they often end up dipping into an unauthorized overdraft and get charged such high fees for doing so. As payday loan providers are willing to take people even if they have bad credit history and they have proved that their charges are much lower than many major banks, the most logical option for people to look into seems to be when they are searching for something to help tide them over financially.

If you are looking for short term financial help, then compare the rates provided by a reputable payday loan provider. You’ll often be amazed at how much cheaper it can work out when compared to banks or other loan companies, and if you ensure that you choose a company with a good reputation then you’ve got nothing to worry about at all. FCA regulations mean that these companies are the future of borrowing money on a short term basis.

Payday Loan Scams 123,400 Of Customers

After making unauthorized withdrawals from customer accounts; CFO Lending was called to court after being investigated for fraudulent activities, as well as, harassing their clients for debts to be paid. The company is now ordered to repay 34million to those that they had stolen money from. The Payday Loan Shark, which is the company that was at question, not only was removing money from peoples’ accounts without proper authorizations, they were also charging clients more than they were supposed to or what was agreed upon, as well as sending threatening letters and text messages conducting a business with little to zero professionalism at all. It is not known when these activities had started or how they had started taking place.

Despite all the money they were stealing from people, the company quickly ran out of cash leaving the payday loan company up for sale to those willing to buy it, and 26,400 victims waiting for their money still. These clients are not sure if they will ever see the money or not, and if they do see repayment from the company it is not expected to be within’ the near future. It is estimated that each client remaining on the company list to repay, they owe roughly each person about £138 each. Before running out of cash, the Payday Loan company had managed to pay 97,000 people. This is leaving a total of 123,400 as victims of the illegal activity from the company and billions charged and stolen from clients.

The owner Henry Smith, and his family had lived a very luxurious life style with holidays spent in some exotic places and traveling via private jet whenever any of them pleased. It is a wonder why they had not been under question sooner with how luxurious and open the family was on their riches. This had soon come to an end as Smith business was under investigation from the Financial Conduct Authority when they had found illegal and unprofessional wrongdoings in a catalogue. Smith and his wife seem to not be affected by the investigation at the time it was taking place when they were seen touring Italy and Switzerland in their Ferrari. But little did Smith know all the money he was spending was going to be repaid back to his victims

It is not for sure what involvement each employee was taking place in the activities. We don’t know if this was the act of certain individuals, if it was ordered from smith, or if it was a team effort to start the fraudulent activity. It is also not for sure if any of the clients will be placing harassment charges and making grieving reports against the company for the threatening letters and text but it is suspected that some of the victims have hired lawyers due to the fraud activities they’ve faced.

However, despite the illegal activity taken place from the company, they still have roughly 60,000 clients owing on their loans. The company is still trying to manage the books while they are looking for a buyer to take on the company. But the chances are that will not be happening anytime soon for Smith and his administration due to the matter of on top of owing 26,000 they also owe several millions of pounds to their creditors.

At the time, it’s unknown how many people were laid off due to the lack of funding from being able to pay back their debts. All that is known that some of the employees were kept on and that the sales and asses as well as what they are doing in terms of review their business strategy is strictly being kept confidential.