In its latest report, entitled Credit 2.0?, the CFA suggested that despite the low levels of inflation and rising household incomes, the level of personal debt in the UK is increasing. This, the CFA said, meant that Britons were borrowing again. The body added that changes in the economy have resulted in a higher demand for short-term credit.
In April 2014 the Financial Conduct Authority (FCA) took over the regulation of consumer credit. It set a cap on the cost of payday loans of 0.8 per cent of the amount borrowed per day, as well as a 15 cap on default charges.
However, the CFA has suggested that despite there having been a 20 per cent increase in applications for short-term loans between September 2013 and August 2014, there was also a reduction in the volume and value of loans.
The number of firms operating in the market has dropped from 240 in 2013 to 40 in 2015. Furthermore, 80 per cent of loans are being rejected.
This has led to an estimated 310,000 families being in contact with illegal lenders in the UK, the CFA said. It added: The illegal money lending team believes this figure to be an underestimate.
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Russell Hamblin-Boone, chief executive of the Consumer Finance Association, explained that borrowers are being excluded from credit and concerns are growing for how they are filling the gap in their finances.
“It is time to draw a line under the attacks on short-term lenders, recognise the huge improvements in lending and accept that we have a highly-regulated, legitimate market to keep people out of the hands of unscrupulous, illegal lenders,” he said.
The report, which calls itself the most up-to-date snapshot of the short-term loans industry, has been accused of being “dishonest” in its findings. Citizens Advice argued that it had seen a 53 per cent drop in the number of payday loan problems it recorded in April to June compared with the same period a year earlier.
Similarly, Carl Packman, an author of payday loans books, said that while government, local councils and the legal authorities must do what they can to stop illegal lenders exploiting people, it is shameful of the CFA to pretend it knows that illegal lending is rising.
He said: “There is no evidence that illegal loan sharking is on the rise and it is dishonest to pretend otherwise. What the CFA is guilty of is to suggest that sensible regulation over the controversial and out-of-control payday lending industry is anything other than a good thing.”