Payday loans: an improved market?
Part 1 - Overview of the trends in the Payday Loans market
The High Cost Short Term Credit (HCSTC) Market, more commonly referred to as the ‘payday loan’ market, has undergone significant regulatory reform over recent years. To understand the impacts that these changes have had on consumers we have launched a programme of research to examine changes in the market and what these have meant for UK consumers.
In this first report, we look at Citizens Advice data and available market data to understand what changes have taken place.
In conclusion, it appears that the stronger regulation of the market has led to a reduction in consumers suffering from sub-standard firm behaviour. There are still examples of consumers suffering detriment as a result of taking out a payday loan. We will explore the types of detriment in our second report to understand this impact in more detail. It is hard to ascertain if this is down to firms leaving the market or from those that have remained improving their practices. Our view on the shift in market participants does indicate that there has been an improvement in lending practices shown by the fact that 42 per cent have been fully authorised after rigorous review. We also found that approximately 38 per cent of the 2013 market participants have left the market and therefore can no longer mistreat consumers.
While we are able to conclude that our clients are having fewer issues now than previously regarding their payday loans, this analysis does not allow us to understand how the stricter approval rules around payday loans affect clients’ other credit choices and debts. We can see that clients who have payday loan problems have multiple debt issues, but we have not been able to yet identify the issues that those who have been refused credit since the rule tightening have. We will be exploring the access impacts of the changes in a later report to answer this key question.