Our Response to Martin Lewis on Payday Lending Criticism

We wanted to write this piece in response to Martin’s reply to our statement naming him as one of the reasons we surrendered our payday loan licence. I’m glad he took the time to respond - this wasn’t something we expected, but it’s appreciated. While he described my comments as “venom,” which might make for a dramatic headline, it’s not a big issue.

Read Martin’s Response Here

Martin claims that we didn’t check our facts. I want to address each of the points he highlighted.

Martin’s first rebuttal is that I overstated the amount he sold his website for. Fair enough—hands up, I’ll accept that the £300 million figure I quoted was flippant and likely way off. However, the core point still stands: Martin has the capital to start a substantial payday loan company if he wanted to, and I stand by that assertion.

Martin rebuts my claim that he doesn’t put his money where his mouth is when it comes to lending. He correctly points out that he supports lending via peer-to-peer platforms and credit unions. While we acknowledge this, we still believe his views on payday loans are hypocritical.

• Peer-to-Peer Lending: Peer-to-peer platforms like Zopa and Lending Circle are highly selective and focus almost exclusively on prime borrowers. Comparing these platforms to the payday loan market is like comparing apples to oranges. Martin’s criticisms of payday lending are targeted at a fundamentally different customer base. Prime borrowers served by peer-to-peer platforms are not the same people who turn to payday lenders.
  
• Credit Unions: Credit unions do provide support for struggling borrowers, which addresses some of our criticisms. However, Martin knows his money is safe when placed in a credit union, as deposits under £85,000 are guaranteed by the Financial Services Compensation Scheme (FSCS). Payday lenders don’t have that luxury. If a customer fails to repay us, the loss is entirely ours.

Our point is simple: running a payday lending business isn’t easy. Even large companies like Welcome Finance and London Scottish have collapsed because of unpaid debts. If Martin believes it’s possible to run a successful payday lending business under his proposed conditions, we invite him to name the rates he believes are fair and lend his own money at those rates. If he succeeds, I’ll happily admit I was wrong.

Martin states that he doesn’t want to kill the market but simply regulate it. The problem lies in the specifics of those regulations. For example, the FCA and politicians have suggested a price cap of £24 per £100 borrowed per month, likely coming into force in January 2015.

Let’s break this down:

• Cost of Lending: A credit check costs us £3 per application, and we approve fewer than 1 in 5 applications. This means we spend £15 on credit checks for every approved loan. Out of the £24 cap, only £9 is left to cover bad debts, rent, utilities, staff salaries, website upkeep, banking fees, and other costs. It’s simply not sustainable.
  
• Forced Higher Lending: To make the model work, we’d need to lend larger sums. If a borrower wants £100, we’d need to lend them at least £500 to make the loan viable under the proposed price cap. This isn’t good for anyone, especially borrowers who only need small amounts.

The hint that regulators may further limit rollovers is laughable. Rollovers are already capped at two, but larger lenders have already found ways around this.

Many payday lenders own separate brands offering 6- to 12-month loans at around 400% APR. When a borrower reaches the rollover limit, the original payday lender refers them to their "sister" brand for a longer-term loan to cover the penalty fees of the original debt. The borrower ends up with two loans: the original payday loan (minus fees) and a new high-interest long-term loan.

This tactic is entirely legal under the very regulations Martin and others have called for. Meanwhile, small, independent lenders like us - who operate transparently and competitively - are being driven out of the market.

We don’t doubt that Martin means well, nor are we accusing him of dishonesty or misinformation. However, we ask him to acknowledge that lending, particularly in the payday loan market, is not easy.

We invite Martin to look at things from a lender’s perspective, especially small independents like us trying to compete with larger, more resourceful companies. The constant threat of regulatory interference makes it impossible for us to plan for the future. Stability is essential for any business, and we don’t see that happening in this sector anytime soon.

If Martin wants to try lending in the payday loan market, we genuinely wish him the best of luck. With his brand name and resources, he could make a significant impact. If he succeeds under the conditions he supports, we’ll be the first to congratulate him.