Sunny Loans announced this week that the high-cost lender will be going into administration. The company, which trades under American-owned Elevate Credit, mentioned covid-19 and compensation claims as the reasons for their withdrawal from the market.
With rates exceeding 1,000% APR, Sunny is the latest in a series of high cost lenders to go under and exit the market. Almost two years ago, the payday giant Wonga filed for administration after owning a total of £500 million in compensation in mis-sold loans. Shortly followed by the other market leaders including QuickQuid, The Money Shop and PiggyBank.
Few lenders have been able to maintain stability and high profits in the short term lending space in recent years. The introduction of tough regulations introduced by the Financial Conduct Authority in January 2015 limited what lenders could charge to a price cap of 0.8% per day, including a strict authorisation process to offer loans and compulsory credit and affordability checks for any customers.
The City regulator has continued to crack down on high cost lending by investigating individual firms, encouraging refunds from existing customers that may have been mis-sold or overcharged and also handing on-the-spot fines to lenders.
Not only could customers who used high cost lending, ask for refunds for the full loan amount and interest, any cases transacted through the Financial Ombudsman would charge an additional £500 in administration fees to the lender, regardless of whether the claim was approved. The average reclaim ranged from £50 to £20,000 for some customers.
For Sunny, the role of coronavirus added further challenges, with the company not issuing any new loans, continuing to refund old customers and also required by law to offer payment holidays to those that requested it.
Beyond Sunny, the future is looking bleak for any lenders in this space, where the average customer borrows £250 to £300 over 90 days.
From a borrower’s perspective, there are fewer options now available online for short term loans and coronavirus is only creating a tougher and stricter approval process.
As alternatives, borrowers can look for low interest credit cards or free overdraft facilities. There is always the option of using a credit union, and whilst this offers very low rates of around 26% APR, the funding process is usually a week or longer – tricky when payday lenders can offer funds in 1 hour or less.
There is also the role of peer-to-peer lenders such as Fund Ourselves, Ratesetter and Zopa who openly lend to people with bad credit histories. Finally, you can consider borrowing from family and friends, which to-date proves to be the most common and successful form of borrowing.