There have been many scandals in recent years, but the rise of payday lenders is one of the worst. The industry has mushroomed in the past 5 years, along with the pawn industry. That the pawn industry is now suffering is partly due to its huge over-expansion and also the fluctuating price of gold making commercial decisions harder.The Payday loans industry by contrast has grown and grown with 200 lenders now registered with the FCA as it now tries for the first time to regulate the industry as of today. Yup, you heard it, as it starts from today trying to regulate the industry. All these adds for Wonga etc that have been around have all been part of an unregulated industry.
Now, as Capitalists, we have a lot of sympathy here with people borrowing to make up short terms needs as they wish. It's a free country is a saying you don't hear so much these days for obvious reasons, but nonetheless, people should be free to make choices. However, when the choices come with 4 pages of font size 2 text and usurious rates of interest then it is not a free choice - its a bad choice. It's not good Capitalism to have those with capital freely pray on those without and its not a free market where the particpants are at such opposities in terms of power and competence. basic regulation is always needed to underpin fair markets in any system.
Long ago, the FSA as was had a principle of Treating Customers Fairly, this meant that firms could sell products but should seek not to rip people off blatantly - in fact this is the basis for many of the derivative and PPI mis-selling claims that abound.
My take on it is that the owners for Wonga et al are not long for this world and if I was them a swift use of share capital to acquire less opaque businesses would be the top of my agenda. Even the FCA are going to twig that 2000% interest rates are usurious and are effectively a rip off of the stupid and ignorant which is far from what should happen in financial services transactions.
The industry will as a whole survive as indeed people have perfectly legitimate reasons to need short terms lending from time to time (I know I do!), but I would expect some rather sharp changes in practice in the medium-term. One thing that is a shame is that with all the LIBOR and FOREX scandals going at full whack, I doubt the FCA has enough capacity to do the job effectively in the short-term
