High-Cost Short-Term Credit (including Payday Lending): UK Market Insight Report 2017

LONDON, Aug. 15, 2017 /PRNewswire/ -- This market involves the provision of High-Cost Short-Term Credit (HCSTC), such as payday loans, in the UK, via a website, call centre or high street shop. It does not include loans provided by callers to the home (Home Credit).

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The Financial Conduct Authority (FCA) Handbook definition of the High-Cost Short-Term Credit market includes unsecured consumer loans with Annual Percentage Rates (APR) of 100% or more where the credit is due to repaid or substantially repaid within 12 months.
– The FCA definition excludes certain loans such as those secured by a mortgage, home credit agreements (where the lender calls at the consumer's home to provide the loan and collect payments, otherwise known as 'doorstep loans'), and bank current account overdrafts.

For this report, Apex Insight follows the FCA Handbook definition with the exception that they have widened the definition to include loans with APRs over 95%.
– Some market participants are offering loans with APRs of (for example) 99.9% possibly to ensure the loans are outside the boundary of the specific regulation of HCTSC.
– Apex Insight considers that these loans are likely to be economically similar to loans with APRs of 100%.

Apex Insight quantifies the market size, historical growth rates, segmentation patterns and levels of industry profitability while reviewing key factors behind these figures.

It also carries out an in-depth analysis of the relevant drivers of industry growth – in particular the macroeconomic environment and regulatory framework – setting out historical trends and available forecasts.

Our forecast for industry growth is based on this analysis of historical trends and growth drivers, with a focus on the effects of regulation on the profitability of HCTSC providers.

What are the objectives of this report?
Over the last decade HCSTC lending has emerged and grown into a major industry with customers measured in millions.
– The HCTSC industry, previously characterised as the payday lending industry, is frequently in the news.
– Particularly prior to the FCA's price control regulation, lenders were often criticised for charging excessive rates of interest and fees which allegedly exploit low-income consumers. However, many lenders inspired high levels of customer loyalty and enjoyed satisfaction rates that would be the envy of the mainstream banks.
– The FCA has imposed stringent regulations on the market including – highly unusually – a price control mechanism. When it introduced the new regulations it forecast that only four or five of around 400 payday loan providers would remain in the market. Although many firms have withdrawn there are still at least 30 active High-Cost Short-Term Credit market participants and even some new entrants.

This report aims to explore the industry behind these apparent contradictions, probe the factors which have driven its historical growth and recent decrease in size and provide a view on how the market is likely to perform in the future, setting out the reasons why Apex Insight believes this is a probable outcome.

Other questions the report considers include:
– Why did the High-Cost Short-Term Credit market grow so rapidly in the UK and what factors have made it develop more rapidly here than elsewhere?
– Who takes out payday loans and other forms of HSCTC and why?
– Who are the main companies in the market, who owns them and how have they performed?
– What impact has the FCA's price cap had on the market?
– How have lenders adjusted their business models in response to it?
– What further impact might regulation have on the market in future?

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