Tackling illegal lending

The research and analysis department at Western Circle recently carried out a survey that revealed some startling facts about the payday loan industry.

Since January 2015, over 35,000 nurses have applied via Cashfloat’s online form for a payday loan. In fact, we discovered that 11% of all nurses in the UK have applied for a payday loan.  Another shocking statistic showed that nearly half of nurses who applied for a payday loan had children. One nurse we spoke to told us that her pay had been frozen for over 6 years, whilst another had considered leaving the NHS because of stress. We were therefore not surprised to see that over 10% of all our applications came from people in the health and social care sector. This sparked a new research project into why certain professions need payday loans more than others.

What adds insult to injury is the results of our survey asking payday loan customers to tell us how much they know about payday loans and the regulations governing them. Recent investigations by the FCA have shown that the number of loans taken each month reduced from 800,000 a month in 2014, to 300,000 a month in 2015, after the new FCA caps took effect. However, 18% of our payday loan customers thought that the amount of payday loans actually increased during this period. Furthermore, only 6% of customers knew all of the FCA regulations and 15% thought that payday loan lenders can charge whatever they want in loan fees and charges.

If payday loan customers are so ignorant of the FCA regulations, do the regulations help or are the watchdog’s attempts futile?

Nobody can say that the FCA regulations have had no effect. Furthermore, it can be argued that the average payday loan customer does not need to know all the FCA regulations. As long as the lending company abides by the rules, customers will remain safe.

That is true, as long as you are dealing with an FCA regulated company. But, there are concerns voiced by the FCA that the price caps introduced two years ago are sending more people to illegal loan sharks. They are currently undertaking an investigation, the findings will be released next summer.

In the meantime, we are concerned. If more people are in fact turning to illegal lenders, the results of our research are increasingly worrying. Customers who don’t know the regulations are at further risk from unscrupulous lenders. For example, our research showed that 14% thought that you have to give something to a lender as security. We can well imagine how illegal loan sharks would use this statistic to their own advantage. Another example, only 34% of people we asked were clear on the difference between a direct lender and a broker. This means that customers don’t know who they are dealing with and who their information is being shared with.

At Western Circle we are eagerly awaiting the results of the FCA investigation. Tackling illegal loan sharks and protecting UK citizens from uncontrollable debt is our first priority, and our mission as a responsible payday loan lender.

Becky Hall, Financial Services Analyst and Lead Researcher, Western Circle