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Payday UK and Payday Loans


Payday Loans have been in business without facing any form of regulation for far too long. This has seen their unprecedented rise which has brought about the rise of an even more unstable economy. – PowerPoint PPT presentation

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Title: Payday UK and Payday Loans

Payday UK and Payday Loans
Payday Loans have been in business without facing
any form of regulation for far too long. This has
seen their unprecedented rise which has brought
about the rise of an even more unstable economy.
There have been speculations circling around the
complete elimination of this industry, which
could see just 4-5 payday lenders left from a
pool of almost 400 payday lenders currently
operating in the industry. Companies like Payday
UK, Lending Stream, and Speedy Cash are some of
the lenders who dont see a profit in being in
this industry and as a result, will gradually
transition out of this business.
Some of the reasons why lenders are considering
moving out are because of the strict cap that has
been placed on them in terms of interest rates
and fees. With a drastic difference from the
exorbitantly high interest rates that came with
these types of loans, the Financial Conduct
Authority has put a maximum cap of 0.8 per cent
per day on these loans offered.
In addition to that, the default charges and
penalty fees that did not have a limit earlier
and most notoriously dependent on the variable
market rates have now been placed under a strict
cap of 15 pounds per 100 pounds on any amount
that the borrower opts for.
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This has been welcomed by authorities as well as
borrowers, as this was leading many people into
the cycle of debt, which was seeing hundreds of
thousands of a vulnerable population perishing to
the uncertainty of these institutions. 
Moreover, this has been a greater emphasis that
is being placed by authorities to shift borrowers
to more stable and less risky lines of credit, so
as to avoid any kind of malpractices. This is
seeing the rise of credit unions, non-profit
organizations and many such institutions that can
now replace the payday lending industry.
Interestingly enough, many of the conventional
banks have recently stated that the demographic
that is dependent on these payday lenders also
come under their target demographic, which shows
how unaware the borrowers are, in the area of
fiscal knowledge. 
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On the other hand, many experts have also claimed
the invisible presence of these major banks in
the payday lending industry as numerous surveys
have found these payday lenders like Payday
UK being financed upto almost 38 of their
operations by these banks. Once the authorities
stepped in, these major banks bowed out of the
industry but not before creating a huge ripple in
peoples disposable income.
In addition to that, these banks, realizing the
potential profitability of this industry, formed
other means of interacting with borrowers through
the appointing of middlemen who claimed to have
no direct link to the major players, but were
playing an active role in this industry. Ever
since the caps introduced by the FCA, it has seen
most of the players leaving the industry barring
a few major players who have agreed to stay on,
respecting the ethical standards set by the
regulatory body.
It has been observed through several studies that
many of these payday lenders are extensions of
major banks and financial institutions. This
essentially means that these payday lenders are a
front for these major banks that are responsible
for only handling the collection and the
application process and the loan is actually
given by these banks. The state usury laws are
also one issue that has been bothering critiques
of this industry. 
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For example, in most of the states in the US
(where this industry was thriving), where they
found that the laws restricted the interest rates
they could charge on one loan, they started
exporting their interest rates to states where
the laws were not so strict, provided they were
present in those states. If they were controlled
by banks, the banks would simply do the exporting
so that it was easier to manipulate the market.
For payday lenders who did not have a store
outside one state, they would affiliate with
payday lenders in other states or sell their
business to those lenders, in order to ensure
continued profit. However, states soon realized
that the cap on the interest rates were in their
hands and once they saw the state of distress
this was leading borrowers to, they decided to
confine the interest rate to a strict 15 on
every 100 borrowed. This has seen the start of
many regulations that are needed to run this
One of the main concerns for payday lenders
like Payday UK and others is the fact that there
might be a serious encroachment on their customer
base, if banks were to deal directly with the
customers. This would ideally mean that banks
would not needpayday loans lenders to offer cash
advances to the customers and since banks have a
much larger customer base than payday lenders,
this could serve as a benefit to the borrowers.
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There have been banks like the Wells Fargo Bank
that has stepped up the initiative on these
practices. They are offering a scheme called as
the Direct Deposit Advance which they are
supplying only to customers who have a direct
account with the bank. This includes giving loans
of the amounts ranging between 300 pounds to 500
pounds with a relatively lower interest charge of
5 pounds on every 100 pounds and would be
automatically deducted from the next time you
deposit money into your account. 
Since these banks deal only with their customers,
there is less chance of malpractice, there is a
sense of security amongst the borrowers and it
also brings confidence in the minds of the
borrowers knowing they will not have to pay
additional interest charges.
By allowing this practice, this also filters the
demographic applying for these loans. Since the
borrowers would be people with a valid bank
account, there would be no need for credit checks
and these loans could be offered to people for
the purpose for which they should be used and
that is during emergencies. This is a practice
that should be encouraged by the critics and
supporters alike.
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