Worst kept secret in finance - HCSTC cap to be relaxed in 2016

Just as we and other lenders have always predicted, the current cap on High Cost Short Term Credit is to be relaxed. It won't be abolished but will be gradually made less effective until it is eventually meaningless.

It has always been rumoured that the FCA have never really favoured an industry price cap. Documents released under the Freedom of Information Act do in fact show that it was the Treasury who ordered the FCA to implement some sort of cap, the FCA had previously refused to do it using the powers it had.

In reality there never has been a cap, as FCA Chief Martin Wheatley correctly pointed out to (at the time) Treasury Minister Sajid Javid, lenders based in any other EU country could charge whatever rates they wanted. We have seen several websites spring up that are offering loans to UK consumers from Latvia. Before people try to write to us and inform us that loans over the price cap are not enforceable by UK Courts - you are wrong, they are!

Going back to the HCSTC market, it has always been an industry joke that the FCA set the cap at such a low rate it would prove to be unsustainable in order they could tell the Treasury "told you so". As lending in this market has shrunk to about 20% of the original market lending volumes, the FCA seems to have won. To anyone who had ever been involved in the lending industry. The £24 per £100 cap was almost comical.

We were never the biggest payday lender (we stopped HCSTC products in May 2014) but even we knew it was a joke. We used to fail 4/5 applicants for ever one that was accepted. That was around £16 lost in credit checking fees for every one that was accepted. That left us £9 in profit on someone who wanted to take out a £100 loan, then we took off staff costs, rent, council tax, advertising, technical costs, money transfer costs and of course bad debt - those that don't repay the cash.

It wasn't even close to us staying in that market – so we and others didn’t!

The only lenders who survived were the ones who had a massive existing user base and they would reloan / top up to those customers. We know of one big lender that wasn't taking on new customers at all, they would just decline all their new applicants. This way they maintained the image of still being in business but without paying credit check fees or the costs involved in obtaining new customers.

The news of a relaxation in the cap will come as a shock to those who campaigned for it, but they have had 8 months to gather data and evidence that their cap has led to a reduction in house hold debt or whatever rainbow they promised - we just wish them the best of luck with that.

As many will notice, Stella Creasy, Martin Lewis etc seem to have gone quiet since the cap was introduced. They may pop back up with rhetoric in the future but this is the time for evidence not dogma. Their predictions of cheaper rates just haven't materialised at all. In fact, loans of over £1000 at 98% APR are now common place and the blame for this has to be left at their door.

The information we have from our highly reliable sources indicate that an announcement on the new cap level will be announced in 2016 and the cap raised to £48 per hundred in January 2017. The £48 level was above what the likes of Wonga and others were charging before the original cap was announced.

Eventually it is expected that the price cap will be quietly dropped without anyone noticing at a politically convenient point in time.