When the FCA started to implement a payday loan cap, there was some worry within the industry that there would be major repercussions and that the industry would never recover. There was also concern than most lenders would exit the industry and leave a monopoly behind.
These fears tended to be unfounded, though there certainly were some big changes for the industry following the institution of the caps. These caps specifically limited how much could be charged for late fees, how high the interest rates could go per day, how many times a loan could be rolled over and limits to other charges. Essentially, the entire set of fees and rates charged by payday lenders was now given a maximum limit, and exceeding that could mean huge fees and expulsion from the industry.
Now this meant that many payday lenders had to change the way they did business. They had to change their fees up and even be more careful about the kinds of people for whom they approved loans. They could no longer accept just anybody for their loan and expect to make as much money. This caused many lenders to tighten their approval process up a little bit and ensure that the people they approved would be able to repay the loans on time and in full. Spreading the loan out over the long term was no longer in their best interests. That’s because there was now a limit on the total amount of the loan, so long term repayment would just drag out the same amount of money over a longer period of time.
Beyond just changing who they did business with, many lenders also changed where they did business. No longer were most lenders set up to meet with customers in person. Instead, many of them took to the online marketplace, carving out a niche where there was not much of one before. The online payday loan industry exploded following the implementation of the caps.
What was primarily an industry occupied by corner shops and physical locations became a mostly online business. This actually made the entire application and approval process faster and easier for consumers and lenders alike. They could process the loans quickly and move onto to other customers fast. This meant they were able to accommodate more customers at once and take on larger workloads.
While the industry is still changing, it is easy to see how the cap has greatly altered the payday loan landscape.