Payday loan giant Dollar Financial has warned its investors that the regulatory scrutiny the industry is subject to is having an adverse impact on its financial position. The US-based company, which trades on the UK high-street as The Money Shop and online as Payday UK and Payday Express, said its turnover from online lending had fallen by 2.9% in the three months to June 2013, having risen by 34% in the same period in 2012. It has estimated that recent changes in compliance requirements will cost up to £10million per year.
However, the company also blamed aggressive marketing from its rivals for the fall in turnover, and said some companies were trying to get as much business as possible on their books before they were forced to exit the industry.
Payday lenders are currently subject to regulation by the Office of Fair Trading (OFT). The OFT is reviewing submissions from 50 leading payday lenders, in which they are 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. 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.
The OFT is continuing to analyse the lenders’ submissions, and has said it is prepared to take disciplinary action against firms who remain non-compliant.
At the same time as publishing the results of its compliance review in March 2013, the OFT also referred the payday loan market to the Competition Commission (CC), citing concerns over how lenders compete with one another. The CC is expected to publish an interim report in the summer of 2014 and a full report by the end of 2014, which will cover issues such as lenders’ profitability, pricing of loans and how easy it is for consumers to compare prices between lenders.
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 says it 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. That is why we are confident that we will emerge from this process with a significantly stronger position.”