Payday Loans Regulation Could Harm Sector | Prepaid365

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8 May 2014
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The leader in the payday loans market has suggested that any attempts to regulate the sector could harm the businesses within it.

This could open up the possibility of many customers reconsidering their financial options and places a focus on the need for effective budgeting and saving.

Wonga.com has warned that the innovative nature of the payday sector makes regulation virtually impossible, despite various calls for the sector to face sanctions.

Wonga expresses concerns

The firm has suggested that a complex set of rules could suppress competition and subsequently harm investment in a response to an investigation by the Competition and Markets Authority.

Wonga has already suggested that it faces a threat from rivals who are able to offer loans for longer periods and with greater payment flexibility, aspects which regulation could potentially stifle.

According to the company, the high rate of satisfaction among customers “provides a direct, clear indication that customers’ requirements and demands are being met”.

“In dynamic and evolving markets where product boundaries are blurred, there are significant risks that any remedies will dampen existing competitive constraints, distort competition and undermine incentives to invest,” said Wonga.

Studies into the payday industry

The sector has faced criticism regarding the levels of interest charged on loans, while the Financial Conduct Authority is also studying the industry.

After taking control of the UK’s consumer finance industry at the start of April, proposals for an interest rate cap are now being considered – which may be introduced in 2015.

While payday loan products remain popular, many in the sector are also expanding their operations into other quarters – including into areas such as electronic payments and small business loans.

Payday loans remain incredibly popular – the Office of Fair Trading said the marker was worth between £2.0bn and £2.2bn in 2011/12, with the average loan around the £270 mark and paid back over 30 days.

The figures suggest that between 7.4m and 8.2m new loans were set up in that financial year, while the total borrowed had more than doubled from the start of the recession.

The need for careful money management

The overriding aspect of the latest regulatory calls is the need for careful budgeting and financial management to ensure that good standards of living are maintained.

One such way to carefully manage your money as an alternative to a loan could be to use a prepaid card, as careful spending is encouraged.

A prepaid card limits spending to the amount on the card at any given moment and is not directly linked to a bank account, ultimately making funds safer.

Ukash Travel Money

The cards can easily be topped up or replaced if required, while accounts can be checked regularly online if needed.

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