by Ronnie Das & Jane Brown
Imagine that with just a simple Google search and a couple of clicks on your smartphone, you could borrow 5000 EUR for anything you want. A luxury holiday or a house renovation, anyone? Very few questions, hardly any background checks. This is not a simulated scenario, but the current reality of the High-Cost Short-Term Loan industry, which is continuously evolving, always finding new ways to entice people into a spiral of debt.
During the recession in 2008, High-Cost Short-Term Credit (HCSTC) – known as ‘Payday Loans’ in the UK – was booming, popular mostly amongst consumers with limited financial resources or poor credit history. By 2012, four figure interest rates were being charged, along with additional fees. 1 Lenders have been predatory 2 , encouraging an unmanageable spiral of debt amongst vulnerable consumers. 3, 4 An exponential growth of the market, up to 50% per year, shows how extremely popular this type of credit used to be – until the introduction of government regulations.
New legislation, implemented in the UK in 2015, changed the payday loan market considerably, leading to a massive decline in demand for problematic lending. 5, 6 Responding to a wider call, the Financial Conduct Authority took decisive action by introducing strict financial regulations and interest caps against payday lending system. (suite…)