80% of applications for payday loans are rejected

Families are facing more difficulties when it comes to borrowing money to pay for their bills or emergency expenses. In fact, up to 80% of the applications for payday loans have been rejected and dozens of firms are no longer operating in the UK. The Consumer Finance Association is concerned that many of these people who need access to quick cash will turn to alternative sources of funding, even including high priced loan sharks.

The regulations that have been created by the Financial Conduct Authority have put a tremendous amount of pressure on the payday industry. While experts may have different opinions on whether these changes have been positive, or if they are just causing consumers to turn to even more expensive costs forms of borrowing, the fact is that many borrowers are struggling to take on a payday loan.

Statistics from Consumer Finance Association

The number of loans issued to consumers by these firms has been decreased by almost 70%. Not only that, but about 80% of the applications have been denied. The Consumer Finance Association has accumulated this information based on the last 2 years worth of data by assessing hundreds of thousands of applications from across all areas of the UK.

While the next stat is more controversial, it is estimated that almost 5% of the people rejected from a payday firm are turning to illegal lenders, often called loan sharks. While this is not a large percentage, those individuals would still be paying much more money to borrower the cash they need.

With the new price caps and regulations in place from the FCA, companies such as Money Shop, Wonga and Payday Express state that the funds they offer to households are not the worst forms of credit. The market is now so extensively regulated by the Financial Conduct Authority, which lessens risks to borrowers. These firms state that since they need to cap fees and interest rates, they are better able to provide families the cash they need for any unexpected bills they are threatened with.

There have also been a decrease in the number of debt arrears cases as well as overall complaints on payday firms. Citizens Advice Bureaus have had about a 50% drop in the number of people claiming a hardship from these loans. The CMA is stating this also shows that the industry is treating people fairly, while other experts say this shows now is not the time to loosen up the regulations in place.

There are not about 40 approved payday lenders in the UK. This is down from over 200. However loans sharks and other forms of credit, such as guarantor loans, are also still available. The risk is that now with the new regulations on payday loans, and the number of applications being denied, that families turn to these other lenders such as loan sharks (which are not regulated) for funds.

The battle over how to provide consumers options continues. No matter the outcome, people will still need access to credit from time to time, the question is where they will get it from. Will it be a payday lender, credit union, loan shark, or some other source? Time will tell.