Essex-based Money Republic Limited entered administration on January 29 2014, after struggling to service its obligations to creditors. The company had marketed itself as a low cost payday lender, which charged interest of only 1% per day and offered longer repayment periods than many other lenders. It did not offer extensions to loans similar to the ‘rollovers’ commonly associated with payday loans.
Money Republic owed its creditors £633,588 on entering administration, and had only £331,881 in fixed assets, monies owed by debtors and provision for liabilities.
Alex Cadwallader and Neil Bennett of corporate insolvency specialists Leonard Curtis have been appointed as administrators.
Some commentators have suggested that smaller payday lenders will find it increasingly difficult to survive, given the intense competition in the marketplace and the increased regulatory burden. Lenders are currently subject to regulation by the Office of Fair Trading (OFT). The OFT requested submissions from 50 leading payday lenders, in which they were required to explain how they have changed their practices and procedures in order to address concerns identified by the OFT in its compliance review of the payday sector, the results of which were published in March 2013.
In one respect, the review appears to have had a significant impact, as 19 of the 50 lenders have informed the OFT that they are ceasing payday lending activities, although 15 of these firms intend to continue trading in other areas of consumer credit. None of the household names have exited the market, so it seems reasonable to assume that these 19 firms are amongst the smallest of the 50 lenders.
Since the publication of the report into the compliance review, six more lenders who were not among the 50 firms covered by the OFT probe have also ceased to lend – three have done so voluntarily and three more have unsuccessfully appealed against OFT decisions to revoke their Consumer Credit Licences.
Since November 2012, lenders who are members of one of four trade associations have been required to meet the requirements of a new Good Practice Consumer Charter in addition to complying with OFT requirements.
From April 2014, payday lending and all other consumer credit activities will be subject to the regulation of the Financial Conduct Authority, which has additional resources to supervise firms and a wider range of enforcement powers than the OFT does at present.
Dollar Financial, one of the biggest names in the payday lending sector, believes that the regulatory crackdown will make it impossible for smaller lenders to survive. Chairman and chief executive Jeffrey Weiss said: “We think many of the other operators, including some of the larger ones, will struggle with the necessary implementation and self-monitoring activities.”
Trading names used by Dollar Financial in the UK include The Money Shop, Payday Express and Payday UK. The financial giant has itself reported that profits have been hit by the OFT review – reporting a 2.9% fall in turnover from online lending in the second quarter of 2013, compared to a 34% increase in the same period in 2012.