Payday Loan Companies Charging Up to 7,000% See Huge Growth – The Bureau of Investigative Journalism (en-GB)
Payday loan companies attract an influx of borrowers. (Image: Neon sign from Shutterstock.com)
Controversial payday loan companies, some charging interest rates as high as 7,000%, have experienced tremendous growth since the onset of the recession.
New research from the Bureau, which analyzed dozens of company accounts and websites, revealed a rush of companies in the industry. At least 24 new businesses have been launched in the high-cost credit industry since 2008, with some operating several different business companies and many offering short-term payday loans.
But far from feeling stifled by increased competition, all but one of the top ten lenders specifically offering payday loans have seen their turnover more than double in just three years – one lender having increased 42 times.
Together, the ten largest payday loan companies have a total turnover of almost £ 800million. Just three years ago, these companies had a combined turnover of just £ 313million. And at the start of the recession only one company had turnover of over £ 50million, now there are four firms with turnover significantly over £ 100million.
The second part of the Bureau’s investigation into the high-cost credit industry follows Wonga’s announcement that he made more than £ 1 million in profit a week last year. But Wonga isn’t the only company operating in the industry to make a profit – Bureau research shows five of Britain’s top ten payday lenders each recorded more than £ 10million in pre-tax profits in their latest accounts published.
The Bureau’s latest research has focused on the top ten companies that specifically offer short-term, high-cost loans, most of which are tied to a borrower’s payday, to establish how this controversial industry has come about. developed during the recession.
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Above: The main findings of the Bureau’s investigation. Get full dataset here.
The short-term loan products offered by these companies, generally described as payday loans, have come under severe attack from consumer groups, including the Citizens Advice Bureau. These groups are based on industry research showing the difficulty many people have in repaying their loans. These reports caught the attention of the Archbishop of Canterbury, Justin Welby, earlier this year when he announced that the Church of England intended to support credit unions with the aim of bringing corporations of “bankruptcy” payday loans.
Yet despite these widely reported difficulties, consumers do not seem to be turning away from the products on offer.
Wonga, which was launched in 2007, recorded the biggest profits in the market. He turned a loss four years ago into a profit of £ 84million in 2012 despite doubling his number of employees last year. In 2011, the company had 131 employees. By the end of 2012, that number had grown to 325.
The company with the second highest profits after Wonga was MEM Consumer Finance. The US company made a profit of £ 38.7million last year on a turnover of £ 123million. He lends up to £ 1,000 at an APR of 2160%.
Wage Day Advance, which was acquired by US company Speedy Cash Holdings in February, has increased its profits 32-fold in five years to reach £ 20million on turnover of £ 39.5million. This represents a very healthy profit margin of 50%. The company offers payday loans to borrowers at an APR of 7069%.
In terms of revenue, the fastest growing company was Lending Stream, owned by the United States. Its turnover has increased 42-fold, from £ 700,000 to over £ 32.7million in three years. It offers UK payday loans through Zebit, which lends up to £ 800 from one to seven months at an APR of 1561.7%. The company also offers a six-month fixed-term loan through Lending Stream at an APR of 4,071.5% – a rate that recently dropped from 3,378.1%.
Despite its growth, Lending Stream is one of the few payday loan companies reviewed for not making a profit. His most recent accounts show a pre-tax loss of £ 4.3million, but this after paying more than £ 5.2million in royalties and general administrative costs to a related US company. As Lending Stream has not declared any profits since its incorporation in the UK five years ago, it has so far paid no corporate tax in Britain. The company declined to comment.
The second-largest payday loan company, CashEuroNet, owned by US giant Cash America International, generated £ 198million in the UK last year, up from £ 15million in 2008. It operates in the UK United via QuickQuid, which offers loans of up to £ 1,500. at an APR of 1734%. It does not publish any profit figures for its UK operation.
As of last year, the industry regulator, the Office of Fair Trading, has been examining the payday lending industry. A report released in March highlighted many concerns, and the OFT wrote to 50 payday loan companies asking them about their advertising and lending methods. He referred the sector to the Competition Commission.
The Bureau’s previous research looked at the top 50 high-cost lenders to reveal that the big UK banks have invested millions of pounds in the industry. It also showed that US companies, some of which are prohibited by law from issuing payday loans in the US states where they are based, are now investing heavily in the less regulated UK market.
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