The death of payday lenders created a feeding ground for loan sharks, the CFA fear
Since the regulations governing payday lenders were brought into practice last year, short-term lending has dropped by 68 per cent, according to a report by the Consumer Finance Association (CFA). However, the report has been met with criticism.
The CFA represents a string of lenders, some of whom are short term lenders, such as Payday Express and The Money Shop.
The report, using data based on hundreds of thousands of loan applications, has apparently proved that potential borrowers in need are being left with nowhere to turn for cash, according to the CFA.
Russell Hamblin-Boone, chief executive of the CFA, commented on the rise of loan sharks: “Concerns are growing for how [people who need short term credit] are filling the gap in their finances… It is time to draw a line under the attacks on short-term lenders, recognise the huge improvements in lending and accept that we have a highly-regulated, legitimate market to keep people out of the hands of unscrupulous, illegal lenders.”
Citizen’s advice have reported a 45 per cent drop in the number of complaints about short term lending, although the concerns of the CFA seem to indicate that the market for short term credit is going off the radar and to the black market for quick cash, leaving these people unregulated and possibly unsafe.
However, the indication that loan sharks are circling has been criticised, and called “dishonest” by Carl Packman, author of the book Loan Sharks: The Rise and Rise of Payday Lending. He said: “There is no evidence that illegal loan sharking is on the rise and it is dishonest to pretend otherwise. What the CFA is guilty of today is to suggest that sensible regulation over the controversial and out-of-control payday lending industry is anything other than a good thing.”
The new regulations, which have limited payday lenders from rolling loans over twice and stopped borrowers from paying back huge, out of proportion sums, have drastically cut the number of payday lenders down. It may not be easy to get a clear picture of what is truly happening to the short term credit market for a while until we can look back upon it with hindsight.