Short-term borrowing – the last 10 years

For short-term lenders, the last 10 years has been something of a rollercoster. Short-term lenders the world over have had to combat deep unpopularity among policymakers and the public alike, in a situation that is reminiscent of the Mc Donald’s controversy in the 1990s, when so many argued that the food giant should be subject to heavier regulation. In the US and the UK, the short-term lending industry has just come out the other end of a raft of regulation aimed at expressing the deep suspicion some people hold towards short-term lenders.

the money shop

Then and now

In recent years, new types of short-term lending have emerged for example startups like unbolted which allows consumers access to peer to peer lending services. ‘Unbolted.com’ in particular has made waves in the pawnbroking industry, with many agreeing that the new online services available through unbolted and their contemporaries increasing the appeal of pawning items of value to a much wider consumer base.

Lenders like Wonga entered the commercial markets on a high. With short-term lending being something of a novelty for many the cash hungry short-term lending industries cleaned up. Wonga, in particular filled a market niche like no other as not only did it offer this new novelty lending service; it also made the whole process of accessing short-term loans easier and simpler. People, could apply for short-term credit online for the first time and short-term lenders made vast amounts of profit, but the heyday was short-lived as the whole concept of short-term lending came under significant scrutiny from members of the public, policymakers and consumer watchdogs. In recent years, even the Church of England has weighed into the debates surrounding short-term lending.

Consumer groups drew attention to the high interest rates charged on short-term loans, whereas consumers who had had bad experiences of short-term lending relayed tales of how short-term lending left them struggling in debt. Some people made the mistake of taking out short-term loans to repay old short-term loans. The short-term lending industry struggled to get their message out and tried desperately to combat the controversy by arguing that short-term loans, used in moderation and correctly (for emergencies) was a very valuable service, and one that would be filled by loan sharks in their absence.

Continuing regulation

The negative publicity led to a UK-wide crackdown on short-term lending that started in 2013 with the publication of a review by the Office of Fair Trading. Heavy regulation of the short-term credit industry followed and this has seen financial services shops and high street services like The Money Shop go out of business, and major corporate players leaving the UK for pastures new with more sympathetic regulation. The full implications of the UK-wide short-term lending crackdown has yet to be seen, but already experts are suggesting that loan shark activity is beginning to increase.

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