Almost 2 months ago QuickLoans.co.uk surrendered our Payday Loan License, something a lot of people cheered about. Those who thought - maybe still think - that closing the Payday Loan Market is a good thing, might just want to read what we have discovered since we left the market 2 months ago. The results will make worrying reading for some and lead us to think that the FCA has either been duped or may even be on the side of the main Payday Lenders.
In early May 2014 we decided not to continue developing a new Payday Loan platform for QuickLoans.co.uk. What we were planning - in our opinion could have made loans cheaper and more competitive. Shortly after deciding not to continue we contacted the FCA and decided that we no longer wanted to transfer our Payday License from the OFT to the FCA, in effect handing back our interim license - well handing back the part that specifically dealt with Payday Loans sector is more accurate.
On the day the press release went out, we had a lot of emails and some stories about us where published in the media, some good some bad. We also took a parting shot at a few individuals; they seemed to take it ok and gave a fair bit back so no harm done.
Since then we have concentrated on some other lending sites, non payday related. All continued as normal, very low lending volumes and more secured than unsecured.
Then came July the 1st
July the 1st was a watershed moment; it was like someone turning on a switch at the beginning of July. Applications almost trebled and business really took off for our 6-12 month unsecured loan packages. There was interest before but just after July the 1st things really took off.
This continued and increased to 400% of our normal application volume in the second week of July, we declined a lot of them due to their credit status and so much so we considered charging an application fee due to the increased cost in credit checking the extra people.
We contacted competitors who we know in the industry and asked them what was going on. They told us that the big volume lenders (I'm not going to name them) had tightened their rules and their lending criteria due to the FCA rules on rollovers and other things that came into effect on July the 1st.
Then I asked why that affected us, we don't offer 1 month type loans anymore - so why are they coming to us and applying? We were told that people were just applying for anything they could get their hands on.
Then it dawned on us, our competition wasn't any other lender, our competition was the product "Payday Loans". In crippling the Payday Loan market, the FCA had smashed our competition for us - wait a minute the FCA had done us a favour?
We actually earn more per customer on 6-12 month loans than we ever did per person for Payday Loans. Think about it, on Payday Loans we would have to credit check a person before each loan, they would only be with us for 1 month - although a minority some would rollover a loan 2-3 times and interest would be calculated on each rollover.
With 12 month loans, that's now 11 rollovers and usually the loan amount is higher, less interest on the headline rate however (doesn't need to be that high) but higher earnings per person per loan overall. It's also 1 credit check over 12 months of lending compared to 12 credit checks when we did Payday Loans.
As a small independent we can't believe our luck, in constructively banning Payday Loans, the FCA has by default handed us a fantastic scenario of forcing people to pay 12 months interest instead of 1 or 2 months they would have been doing. When the price caps of January the 1st come, it's going to be fantastic for us as it shuts down the Payday market to a huge number of people.
Then your mind starts to work a little bit suspiciously, if the changes that the FCA has made benefit a small independent like us to the tune of a few quid. How much is it going to benefit the big players?
All the big players in the Payday Loan market already have secondary brands that cater for 6-12-24 month loans and have built them up for the last 2 years. Why have they been doing that? They've seen what has been coming and positioned themselves perfectly.
Call us suspicious but we think the FCA and others have been outwitted by some very clever bankers who may have actually wanted to smash their own Payday Loan Market as it was competition for what they really wanted, 11 rollovers not the 2 or 3 they were getting.