Tuesday 30 September 2014 3:20 pm

As Wonga profits slide, will regulatory pressure squeeze payday lenders out of the market?

John Lamidey, senior partner at Arminius Associates and former chief executive of the Consumer Finance Association, says Yes.

The Competition and Markets Authority says that 83 per cent of payday lending customers have taken out a loan online, and 29 per cent have done so on the high street (12 per cent use both).

The Financial Conduct Authority estimates that, as a result of its restrictions, there is a possibility that just one high street firm and as few as three online providers may continue to operate. But the real losers are customers, 160,000 of whom may not be able to borrow at all, with a further 210,000 likely to be only able to borrow less than they need.

Department for Work and Pensions minister Lord Freud said on Monday that credit unions are “not viable today”. So watch out for illegal lenders and unregulated online offerings from businesses located outside the UK. Consumers are being penalised by increasing regulation, not protected.

Sam Bowman, research director at the Adam Smith Institute, says No.

Regulation is tightening, and Wonga may be losing ground, but payday lending looks here to stay.

Payday lenders perform a useful function: giving people emergency credit with few questions asked in a short space of time. This comes with sizeable interest: a 30-day loan of £100 from Wonga costs £37.15.

But these loans are so expensive precisely because they are so easy to access. It’s good that such loans exist, but it’s also inevitable that the people who go for them will be the ones with the fewest alternative options, and hence will be the easiest to exploit.

Wonga’s unscrupulous behaviour – sending fake legal threats to customers – is being punished, and a more competitive marketplace might see rivals squeeze the firm out of business altogether.

Just so. But Wonga’s failings should not tarnish the whole industry which, in the end, is answering a very real and important demand.

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