Competition Commission publishes more working papers in payday lending market investigation
During February the Competition Commission published a number of new working papers as its investigation into payday lending progresses. Working Papers are published to invite comments and assist the Inquiry Group develop its thinking on key areas. They do not represent the CC’s definitive views.
Working papers issued included:
- Repeat customers – presentation based on analysis of the transaction data - 53 pages (and accompanying note – 5 pages)
- Customer and transaction level descriptive statistics “customers and their loans” – 50 pages (and accompanying note – 5 pages)
- The size and concentration of the payday lending sector - 13 pages
- Prices over time – presentation based on analysis of the transaction data - 63 pages
- Shopping around - 58 pages
- Local Competition – 28 pages
- Payday Lender pricing – 33 pages
- Entry and Expansion -54 pages
The CC also issued Annex 1 to the Price comparison working paper issued on 31 January (5 pages). This found that a payday loan is typically cheaper than borrowing using an unauthorised overdraft, but may be more expensive than other forms of credit analysed by the CC, including home credit and credit unions.
The size of these working papers aggregates to a lot of reading material and shows some considerable underlying analysis. Uncle Buck welcomes the detailed analysis being undertaken and believes this can only be positive for the industry, as the CC is using actual customer data supplied by lenders to generate its observations, rather than unsubstantiated assertions driven by myths and beliefs.
The CC’s initial observations around the size of the market are:
- Around 90 lenders offer payday loans in the UK
- Total payday revenue [note: this is interest and fees, not loan issuance advances] in FY 2012 was around £1.1bn
- Lenders issued approx. 10.2 m new loans with a total value of £2.8bn in 2012
- Around 80% of total payday revenue is generated by online
- Wonga Worldwide has a 20-30% share of total payday revenue
- By revenue, the three largest firms have just under a 70% share
- By revenue, the ten largest firms have around a 90% share
The CC’s initial observations around the size of the market are:
- The three largest lenders had ~70% of total revenue, >65% of new loans issued and >75% of newly issued value
- The ten largest lenders had ~90% of total revenue, >85% of new loans issued and >95% of newly issued value
- This suggests that around 1 in 3 loans issued is outside of the three largest lenders and 15% of new loans issued, or around 1 in 7 is outside the ten largest lenders.
Payday Lending is a choice – evidence from the CC
The Competition Commission has been analysing a huge volume of data supplied by larger lenders during its market investigation into payday lending and it has also been taking evidence from lenders and other stakeholders, such as banks, trade associations, consumer groups and debt advisers.
Amongst the evidence and survey findings obtained are some interesting statistics which Uncle Buck Payday Loans LLP thinks suggest that payday loan customers are not always seeking the maximum loan amount available, that payday lending is an active choice for some, and that persistent repeat borrowing has been over-claimed.
The CC finds from their analysis of customer data provided by the larger lenders that only 1 in 5 customers take out the maximum loan amount possible. In fact the CC say 50% take out less than half the amount originally available, and this is split so that approx. one quarter take out less than 25% of the amount originally available and one quarter 25-50%.
The CC’s work shows that for customers taking out their first loan in 2012, one quarter took £100, which was by far the most popular loan amount. For the second loan, £100 was still the most popular amount with 17% of customers taking this amount.
In the customer survey, just under 1 in 5 (19%) said a payday loan was their first choice and using a scale of 1-5, where “1” was first choice, 36% gave “1” or “2”. In fact the same percentage gave “1” or “2” as gave “4” or “5” which suggests that a significant part of the market make an active choice to choose a payday loan as it meets the needs and requirements of consumers at that time. This same survey also found that 25% of respondents said they had access to 3 or more forms of credit and 78% said they could have used an alternative source of credit. None of these figures suggest that a significant part of the recent customer base uses payday loans because they have no alternative and no other choices.
In terms of repeat borrowing, the CC say that of all customers taking out a loan in 2012, 65% (nearly 2 in 3) did not come back for another loan between January and August 2013. This is hardly evidence of persistent repeat borrowing by the majority of users.
Uncle Buck believes the data used by the CC is credible because it comes from lenders themselves and supplied to a very clear brief from the CC, with many clarifications being sought to ensure, as far as possible, data was consistent. The CC is transparent and has issued methodology notes for its presentational analyses based on the customer data and also a technical report for the TNS BMRB survey.
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Payday loans are not suitable for, and would be
expensive as, a means of longer term borrowing
and are not appropriate if you are in financial
Although we do our best to process your application swiftly, payday loans are only processed during office hours and are subject to availability and your suitability.
The decision that you receive as to whether you are eligible or not is in principle regarding the information that we have on you. The loan is NOT guaranteed until we get all the information required and do extra checks if necessary. We will update you via email if there are any problems with your payday loan application.
Funding is available within one hour but only if you select this option when making the application and providing you make the request during office hours. There is a £15 for one hour funding and if you don't select this option, funds should be in your account within 3 days. Every customer is different though and this usually comes down to who you do your banking with as some are quicker at processing payments than others.
Let us take a look at the APR we charge as a company in a way that you will understand. If you decide to borrow £200 for a 29 days, you will be repaying £269.90. These figures will obviously vary based on how much money you want and how long until you can pay it back. Interest is charged at a rate of 439.89% and APR is 4248.9%. These rates are fixed and are non negotiable under any circumstances. You should consider very carefully about if you can afford to pay the loan back before you make the application.
Although payday loans are not suitable for everyone, they have a purpose and they always meet this purpose as long as the agreement is met on our end and yours. We hold no liability if you are in financial difficulty, payday loans should be used for the short term only and not as a way to live.
Uncle Buck is a trading name of Uncle Buck Payday Loans LLP Company Number OC356091. Registered Office Building 707 Biggin Hill Airport, Westerham, Kent TN16 3BN. Uncle Buck is authorised and regulated by the Financial Conduct Authority (Interim Permission Number 640978). You can confirm our registration on the Financial Conduct Authority’s website or by contacting the Financial Conduct Authority on 0800 111 6768.