Regarding the future of U.S. payday loans:
U.S. payday loan lenders need do no more than “look across the pond” for guidance. The U.K. has been advocating and implementing rate caps, “best practices,” affordability issues, roll overs, etc. for years. A stone thrown in the waters in the U.K. typically generates a flood in the U.S. payday loan marketplace 12 – 18 months later.
An easy method for verifying my thesis is to simply follow DLLR. Regulators in the U.K changed the game significantly for Internet lenders and lead aggregators months ago. Many of the so-called U.K. “rogue” lenders abandoned the payday loan space as a result of a “dialing for dollars” campaign by the Feds. Embedded lenders such as DLLR, after having their website hijacked, experiencing sub-standard share price performance and declining revenues, are on the mend. Today, DLLR is aggressively taking market share and investing heavily in compliance. It’s paying off!
In the USA, payday loan lenders are experiencing the same issues. AG’s are “dialing for dollars,” subpoenaing 3rd party records in an effort to ID payday lenders abusing borrowers and lacking state licenses, and encouraging lawyers to enlist consumers for costly legal battles. All of us in the payday loan space have friends, clients and peers who have literally abandoned small dollar lending.
So… what’s this mean? Other than “outlier lenders” leaving the small dollar loan industry, not much really. There remains around 60,000,000 U.S. residents in need of our loan services. The lenders who continue to focus on building a recognizable BRAND, drive down their customer acquisition and servicing costs, implement conservative “licensing” models, invest in educating our legislators and regulators, and implement the blizzard of new technologies and social identification methodologies as they become available, will prevail. Our customers are NOT going anywhere! Except to their phones.
Here is more on the future of the U.S. small dollar loan product as we look across the pond.
Statement on a cap on the cost of payday loans: FCA in the U.K.
The duty to cap the cost of credit will be formally established through amendments to the Banking Reform Bill, which is currently going through Parliament.
This will be one of a number of powerful measures that the FCA proposes to use to ensure consumers are treated better when applying for, and repaying, payday loans. As well as a cap on the cost of credit, the FCA has proposed to require a mandatory affordability check for every loan, capping the number of rollovers to two, and limiting to two the number of times a payday lender can dip into a bank account to seek payment. We believe these measures will protect consumers but also allow businesses to operate successfully.
In October we published our proposed regime for all consumer credit activities, for which the FCA takes over the regulation on 1 April 2014. As we said at the time, we need to gather more information before we can cap the cost of credit. This is a complex issue and there are many different aspects to consider to ensure that we get a cap that works well for the UK market. That means researching it, economic analysis and then publicly consulting on its use.
We will also consider the lessons of other countries that have adopted this power to ensure that any cap is right for UK consumers.