The payday loans cap has been implemented, but it is still too early to be able to say what the effect will be on the payday industry.
Theories abound, for example, there are those who say the caps will be positive in helping the short-term loan sector to grow while others say the caps will be instrumental in putting payday loans lenders out of business. Already some of the small payday lenders have shut shop but the big players are surging ahead. It seems evident that big payday lending companies will manage to survive a drop in the annual percentage rates (APR’s) to as far as 1,2000 percent. It is believed that this APR drop will have a negligible effect. With the new APR, borrowing an amount of 200 pounds will mean a drop of only 1 pound.
Policis, the USA based consultancy, reports that payday loans caps in the United Stated caused the credit supply to fall, but the demand remained the same. The question is, what happens when the demand outstrips supply? Naturally, a black market will emerge. With the payday loans industry moving online in the USA business is doing better than ever. Many of these online shops are lending illegally or are unlicensed. Policis is warning against clamping down on the payday loans industry because, as they see it, the tougher the regulations the more lenders will start operating on the internet. It is a fact that it is extremely difficult to police the internet.
In Britain, almost 80 percent of unsecured short-term lenders operate online. The Financial Conduct Authority (FCA) is aware that payday loan caps might limit access of funds to UK citizens but have what they say is a reasonable solution to the problem. According to the FCA, if you don’t have access to credit and can therefore not borrow money, appeal to friends and family.
Payday loans caps in Britain
Back home, the problem is far from being resolved. Where does one access credit and what alternatives are there to payday loans? There are not, it seems, viable solutions. Credit Unions do not have the infrastructure nor the funds that payday companies have and are therefore unable to lend money the way payday lenders loan money. Microfinance companies or organisations are in the same boat. The Church of England has created a credit union that has been useful but neither do they have the resources that some of the large payday companies have.
The British citizens are in need of financial services that are responsive and flexible. Wages are clearly not sufficient so one idea is to raise the minimum wage and teach people how to set a budget and stick to it!
Payday loans have their place in society and it would be good to see them being used for what they were created for.