US payday loan firms fill gap left by Wonga

US payday loan style lenders have emerged as some of the UK's biggest players since the collapse of industry leader Wonga earlier this year.

Familiar brands including QuickQuid, Sunny and WageDayAdvance have all made a dent in the UK debt marketplace, despite efforts by the UK's financial regulator to clamp down on high cost credit.

These three larger lenders have all reported significant rises in UK revenue since the demise of market leader Wonga in August. Despite rising complaints about their service, these companies continue to make strides in accruing new customers from the UK.

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The collapse of Wonga

The UK's Financial Conduct Authority (FCA) brought in a number of reforms over the past few years, including a cap on charges in 2015, and restrictions on advertising for these short term loans.

Consequently, Wonga reported losses of £80.2m in 2015 and were also forced to pay £2.6m in compensation after fake legal letters were sent to customers.

This culminated in a spike in complaints over excessive charges on historic loans, with some customers being charged interest rates of more than 5,000%. The lender was forced to shut down on August 30th, 2018.

This cleared the playing field for US rivals who are rapidly cashing in on the UK's short term loans market.

The challengers from across the pond

Based in Chicago, Enova who operate QuickQuid as well as Pounds to Pocket and On Stride, saw their UK revenue jump to £29m following the demise of Wonga. That was a 20% increase compared to pre-Wonga figures.

Similarly, the parent company of Sunny, Elevate Credit in Texas, saw a 23% rise in UK revenue as 45% more loans were taken out under the brand in the 3rd quarter of the year. In total, more than £20,000 has been borrowed from Sunny since the collapse of Wonga.

The WageDayAdvance owners at Curo have reported a 'high percentage of new customers', with revenue from UK borrowers up 27.1%. However, this firm has also been hit by a wave of new complaints and is considering exiting the UK market.

Both Elevate and Enova have received their fair share of UK complaints too but have insisted that they are 'not like Wonga', and that the complaints they have received are 'without merit'.

Why are we still taking payday loans?

Despite having access to other forms of borrowing, 60% of customers still borrow from payday lenders. In many cases this is down to sheer convenience, but in an alarming number of situations, customers simply don't know where else to turn

Credit Unions often see themselves as an alternative to payday loans, but are having a hard time keeping up in a changing marketplace.

Eight Credit Unions closed in 2018, affecting around 14,000 people and risking poorer customers losing access to short term, affordable credit. These figures are the worst since 2010.

In a letter sent to firms earlier this year, the Bank of England said that credit unions are struggling with a lack of digital services and the professionalism required of a modern financial institution. They also said some collapsed because of 'involved fraud'.

The FCA is working hard to make borrowing more affordable, with recent plans announced to prevent excessive and unfair overdraft charges. However, the rise of payday loan providers shows more still needs to be done.

Consumers are urged to consider other ways of managing debt, as payday loans remain one of the most expensive ways to borrow money.