What’s Happening With Bad Credit Loans?

This year alone, huge players in the finance industry, particularly in niche pockets of the industry, have collapsed and gone into administration. Primarily, these lenders operate in the high-cost short term credit market and could be exploiting those people who need money but have bad credit, or difficulty being accepted for normal credit or loans.

Independent reports highlight that consumer complaints have continued to rise for the second consecutive year; data shows a 130% rise in payday loan complaints, and a 360% increase in complaints about installment loans.

The Rise In Consumer Complaints

The most recent high-profile lender that has gone out of business is Piggy Bank earlier this month, but prior to that it was QuickQuid, which had a third of the payday loan market in the UK. They may have been the most recognised brand name, but QuickQuid belonged to US-based Enova, who are allowed to continue operating with both their US and Brazilian arms of the business, despite the controversy surrounding unethical lending in which they have had to disband.

QuickQuid wasn’t the only brand of Enova’s that went down, it was also On Stride (previously known as Pounds To Pocket), who provided bigger loans, above the standard payday loan lending limit. On Stride’s maximum loan amount was £5000.

Consumer complaints are reportedly the source of the company’s downfall, the tag line for On Stride and QuickQuid’s departure from the UK market is “due to regulatory uncertainty.” Reports show that the company has an expected 10,000 consumer complaints, primarily based around unaffordability, wherein consumers were approved for financial products they could not realistically afford to repay. This is in violation of the Financial Conduct Authority’s regulations. Essentially, QuickQuid and other brands like it that have disbanded in a cloud of consumer complaints could have been exploiting consumers with bad credit, marketing their products as a ‘quick fix,’ and ‘last resort’ loan, which is totally affordable to repay. Moreover, they could have been negligent when performing affordability checks, which is also a breach of FCA regulations.

City Finance Photo by Jordan on Unsplash
City Finance
Photo by Jordan on Unsplash

In December 2019, PiggyBank, another UK payday loans company, also announced they would be going into administration. There is less scandal around this downfall, as they have stressed they will conduct an “orderly wind down” of the business. This is just the latest in a string of four lenders who have collapsed in 2019. All have been ‘big players’ in the markets, yielding impressive returns as a result of providing funds to those with bad credit and could have been vulnerable financial positions. Companies that promise guaranteed bad credit loans, could use these taglines, search terms, and attractive interest rates as a marketing ploy, or it could be a genuine option.

How To Tell The Dangerous From The Diligent?

Bad credit loans are not an actual dedicated loan product, something many consumers are currently unaware of or confused about. With financial knowledge being at an all time low and current eco-political circumstance making many people bury their head in the sand, some credit companies have been preying on those who make themselves vulnerable by ignoring information or data that may help them understand the consequences or state of their finances.

Recent research shows that over half of all people who take out loans do not get the APR they are promised or is initially advertised. This is because lenders lure consumers in with an attractive number, almost like a catchy slogan but hike the price up for those with bad credit.

In turn, the safer bad credit lenders who are in the business of helping their customers are likely to also be brokers. This means that consumers can apply directly for a loan, and in the situation that lender is unable to help, they can connect you with trusted partner companies. Alternatively, they may act as a kind of comparison site, willing to show customers the best rates available for their circumstances, even if that is with a direct competitor. This is a good indicator that a company carries out all necessary financial checks, including affordability and credit checks and is not willing to miss-sell a loan.

What Happens To Outstanding Loans When A Company Ceases Trading?

When a credit company ceases trading, all outstanding loans are still active. This means that customers will need to fulfil their repayments, as they are scheduled to do so, even if they have an outstanding complaint regarding the unaffordability of the loan they are repaying. This seems extremely unfair and impossible. The double jeopardy is only worsened as there is a chance consumers will see no compensation at all, as well as marks on their credit report for any missed payments that are no real fault of their own.

It’s Not Just Payday Lenders …

Less than a year after receiving its trading licence, peer to peer lending company, Lendy, have also submitted to administration after issues with meeting regulations. Lendy were placed on a watchlist earlier in the year, as over £160 million was due in outstanding loans, with more than £90 million in default. These huge figures are astounding, and the high default rate suggests that they were lending to customers who could not afford to meet their repayments

Another issue crops into view around transparency of lending. Regulations for the financial industry are quite clear, a lender must be able to provide detailed, clear and concise information on all available products. They should also provide information about where to turn in the event of a potential debt cycle or issue. Lendy appear to not have provided enough information on their website to do due diligence and have misled customers, whether intentionally or not. The peer to peer lending sector is currently under close scrutiny, especially regarding how the products are marketed. The regulators are currently on a crackdown on the same scale as the payday loans industry experienced in 2013.

Kristin Donahue
Kristin Donahue writes about finance and business, looking for interesting topics to cover.