The familiar blue logo of the Cheque Centre will now be forever different as it is no longer to offer payday loans. The reason? It has decided to stop trading in this market following advice and scrutiny from the new Financial Conduct Authority. This blog will look at the reasons the Cheque Centre has decided to close its doors on the relatively up and coming UK payday loan industry, and will highlight both sides of the arguments surrounding whether their decision is a good thing or a bad thing?
The Cheque Centre – reasons why stopping payday loans was a good thing
The Cheque Centre has had a controversial status for a while. With 451 branches across the UK, it was one of the mightiest contenders in the UK payday lending market (the second largest provider of payday loans in the UK, according to some measures). However, following the establishment of the Financial Conduct Authority, the business, along with established payday lenders like Wonga came under a lot of pressure to change their practices relating to payday lending, particularly those surrounding the treatment of individuals who were in debt. Following consultation with the Financial Conduct Authority, they decided to exit the market for payday lending.
Supporters of the pressure placed on the Cheque Centre will argue that this raises standards across the industry and sends out a message to payday lenders all over the UK that if poor, or unethical practices are pursued, there are commercial consequences for the lender in the form of regulation and possible sanctions that the regulator has powers to impose. It will no doubt also be arguing that the Cheque Centre was profiteering from poor people who have nowhere else to turn to for a loan and was adding insult to injury by following poor practices in terms of retrieval of debt.
The Cheque Centre – reasons why stopping payday loans may not have been the best option
On the other hand, there are also strong, credible reasons why the Cheque Centre should not have been forced to exit the market for payday loans.
Competition – despite all of the disadvantages you might think of as applying to the case of the Cheque Centre and their decision to exit the payday lending market, it is indisputable that the Cheque Centre created a more competitive payday lending industry, with more options for consumers of payday lending products, enabling them to shop around more. A strong line on their recovery of debt made it easier for the business to create cheaper financial products for the consumers they serve (and who will now be served by other lenders). As such you can argue that the regulation of the industry is a blow to competition, which filters down and may hit unsuspecting customers in the pocket – indeed the very same customers the measures are designed to protect. The regulation of the industry to the point where the Cheque Centre has opted to exit the market speaks volumes about how effective market regulation in this area really is and whether this is an effective way to fix the problem of poor industry practices surrounding debt recovery.
Services – like it or loath it, the Cheque Centre did offer a service within the payday lending industry and with over 450 branches, UK wide closing their doors to payday lending consumers, there will be many people forced to go looking for new finance options. Let’s hope they don’t end up at the door of the local loan shark.
Unfair as industry offers employment – the decision of the Cheque Centre to exit the market for payday loans impacts on the numbers of people employed in payday lending services, and the impact is that jobs will be lost up and down the country. So, a measure designed to protect others is actually creating a fresh cycle of debt for many other people, and hundreds, maybe thousands of people who may now need to reach out for payday loans, or even worse – loan sharks. Placed under scrutiny, therefore the decision of the FCA to place so much pressure on the Cheque Centre is arguably counter-productive, and a better outcome would have been a compromise, following consultation between the FCA and the Cheque Centre (which did not happen).
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