Wednesday, December 1 2021

American payday loan lenders have become one of the biggest players in the UK since the collapse of industry leader Wonga earlier this year.

Familiar brands such as QuickQuid, Sunny and WageDayAdvance have all made a dent in the UK debt market, despite efforts by the UK financial regulator to crack down on high cost credit.

These three biggest lenders have all reported significant increases in income in the UK since the demise of market leader Wonga in August. Despite the increase in complaints about their service, these companies continue to make strides in attracting new customers to the UK.

The collapse of Wonga

The UK’s Financial Conduct Authority (FCA) has introduced a number of reforms in recent years, including a fee cap in 2015 and restrictions on advertising for these short-term loans.

As a result, Wonga reported losses of £ 80.2million in 2015 and was also forced to pay £ 2.6million in compensation after bogus legal letters were sent to clients.

This has resulted in an increase in the number of complaints about excessive fees on historic loans, with some clients being charged interest rates in excess of 5,000%. The lender was forced to close its doors on August 30, 2018.

This helped clear the playing field for US rivals who are quickly profiting from the UK short-term loan market.

The challengers across the pond

Chicago-based Enova, which operates QuickQuid as well as Pounds to Pocket and On Stride, saw its UK revenue soar to £ 29million after Wonga’s disappearance. This was a 20% increase over pre-Wonga numbers.

Likewise, Sunny’s parent company Elevate Credit in Texas saw a 23% increase in revenue in the UK, with 45% more loans taken out under the brand in Q3 of the year. . In total, over £ 20,000 has been borrowed from Sunny since the Wonga collapse.

The owners of WageDayAdvance at Curo reported a “high percentage of new customers”, with income from UK borrowers up 27.1%. However, this company has also been hit by a wave of new complaints and is considering exiting from the UK market.

Elevate and Enova have also received their fair share of British complaints, but have insisted that they are “not like Wonga” and that the complaints they have received are “without merit”.

Why do we always take payday loans?

Despite access to other forms of borrowing, 60% of clients still borrow from payday lenders. In many cases, this is due to simple convenience, but in an alarming number of situations, customers simply don’t know where to turn.

Credit unions often see themselves as an alternative to payday loans, but struggle to keep up in a changing market.

Eight credit unions closed in 2018, affecting around 14,000 people and risking poor clients’ access to affordable short-term credit. These numbers are the worst since 2010.

In a letter sent to businesses earlier this year, the Bank of England said credit unions are struggling with a lack of digital services and the professionalism required of a modern financial institution. They also said some collapsed due to “involved fraud”.

The FCA is working hard to make borrowing more affordable, with recent plans announced to avoid excessive and unfair overdraft fees. However, the rise of payday loan providers shows that there is still a long way to go.

Consumers are urged to consider other ways to manage their debt, as payday loans remain one of the most expensive ways to borrow money.

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