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Payday Loans Industry Crash as FCA 100% Cap on Interest Rate and Fees

Personal_Finance / Debt & Loans Jul 15, 2014 - 07:34 AM GMT

By: Nadeem_Walayat

Personal_Finance

The FCA successor to the inept FSA regulator is finally going to act to put a CAP on the pay day legal loan sharks industry a good five years later than they should have acted had the financial regulator the best interests of the general public in mind rather than Britains banking crime syndicate.


To be clear the proposed 100% cap is NOT on the rate of interest charged which at the suggested rate of 0.8% per day still works out to an APR of about 300%. But more importantly it is a CAP on the maximum that can be charged in INTEREST and FEEs so should bring to a HALT to the payday loans industry scam of hooking desperate financially illiterate borrowers into easy to obtain text message small loans of several hundred pounds that soon mushroom to several thousand pounds, a practice which should cease as of January 2015.

The effect of this should be to KILL most of the payday loans industry off for the business model has just gone up in smoke as they can no longer for instance turn £100 loans into £10,000 debt mountains. And as the business model goes up in smoke so should it become far harder for the financially illiterate to borrow as the cap in effect will FREEZE the pay day loan books as they seek to wind down their business.

Many of the floated pay day loans company stock prices can be expected to literally crash when the stock market starts trading later this morning which will act as a prelude to MOST pay day loan divisions of the banks also disappearing over the coming months as i warned of in November last year.

Nov 24, 2013 - Pay Day Loans Judgement Day - Could Interest Rate Cap Trigger Ponzi Debt Industry Collapse?

Pay Day Loans Subprime Debt Industry Collapse?

Whilst its good news that the FCA will finally be targeting the the aggressive debt collection practices of the largely unregulated payday loans industry that has mushroomed over the past 5 years to stand at well over 250 providers, all competing against one another to lend money to those that cannot afford to repay the loans in what appears to be a classic Ponzi scheme-esk structure where loans are usually given to individuals without any background checks that are increasingly for the purpose of repaying loans taken out from other payday lenders, and then again and again which means that payday lenders are effectively paying one another resulting in what is a growing Ponzi pyramid primed for collapse.

You all should know how this could all end for we have seen it all before with the US subprime crash that triggered the financial crisis of 2008, something that we are still trying to overcome.

In fact Payday Loans is Subprime on speed, which means that when the Pay day loans Ponzi bubble bursts it will be in a far more spectacular style than the slow burn that was subprime crash that started to go belie-up in early 2007, taking a good 18 months to hit the financial armageddon stage.

With the stage now set for the government to finally start to act to deal with these legalised loan sharks, so the pay day loans industry is primed for a market to collapse, because financial markets discount the future, they propel a trend into the stratosphere that is primed for a crash, just as is the case with every bubble.

The collapse of the payday loans industry could take place over a matter of weeks or even days as the tulips that the payday loan companies are nurturing (borrowers) are realised to be seen as worthless as they will never be able to repay the debt, and then, suddenly the penny drops and all of the monies invested (loans) cease to exist ponzi style because the merry go around of cycling loans between providers comes to an abrupt end, just as during August 2007 the mortgage backed securities market froze on the realisation that the triple AAA MBS that the banks were invested in were worthless and so were the insurers who had insured the MBS against default.

The new UK Housing Markets ebook ( FREE DOWNLOAD) contains extensive coverage of the dangers of debt and suggestions on how best to manage debt.

    Home Ownership and Debt & Mortgages
140
      Mortgage Debt and the Risk of Ruin 141
      Debt is Slavery 141
      The Circle of Slavery - Past, Present and Future 142
      Debt Free Freedom? 143
      House Price Inflation is the Ultimate Mechanism for Slavery
143
      The Real Secret to Financial Success
144
      Mortgages - Debt Till Death literally! 146
      Debt Conclusion 146
 

New Housing Market Ebook

The housing market ebook of over 300 pages comprises four main parts :

1. U.S. Housing Market Analysis and Trend Forecast 2013-2016 - 27 pages

The US housing market analysis and concluding trend forecast at the start of 2013 acted as a good lead exercise for the subsequent more in-depth analysis of the UK housing market.

2. U.K. Housing Market Analysis and House Prices Forecast 2014-2018 - 107 pages

The second part comprises the bulk of analysis that concludes in several detailed trend forecasts including that for UK house prices from 2014 to 2018 and their implications for the outcome of the next General Election (May 2015) as well as the Scottish Referendum.

3. Housing Market Guides - 138 Pages

Over 1/3rd of the ebook comprises of extensive guides that cover virtually every aspect of the process of buying, selling and owning properties, including many value increasing home improvements continuing on in how to save on running and repair costs with timely maintenance tasks and even guides on which value losing home improvements should be avoided.

4. Historic Analysis 2007 to 2012 - 40 pages

A selection of 10 historic articles of analysis to illustrate the process of analysis during key stages of the housing markets trend from the euphoric bubble high, to a state of denial as house prices entered a literal free fall, to the depths of depression and then emergence of the embryonic bull market during 2012 that gave birth to the bull market proper of 2013.

FREE DOWNLOAD (Only requirement is a valid email address)

Source and comments: http://www.marketoracle.co.uk/Article46448.html

By Nadeem Walayat

http://www.marketoracle.co.uk

Copyright © 2005-2014 Marketoracle.co.uk (Market Oracle Ltd). All rights reserved.

Nadeem Walayat has over 25 years experience of trading derivatives, portfolio management and analysing the financial markets, including one of few who both anticipated and Beat the 1987 Crash. Nadeem's forward looking analysis focuses on UK inflation, economy, interest rates and housing market. He is the author of five ebook's in the The Inflation Mega-Trend and Stocks Stealth Bull Market series that can be downloaded for Free.

Housing Markets Forecast 2014-2018The Stocks Stealth Bull Market 2013 and Beyond EbookThe Stocks Stealth Bull Market Update 2011 EbookThe Interest Rate Mega-Trend EbookThe Inflation Mega-trend Ebook

Nadeem is the Editor of The Market Oracle, a FREE Daily Financial Markets Analysis & Forecasting online publication that presents in-depth analysis from over 1000 experienced analysts on a range of views of the probable direction of the financial markets, thus enabling our readers to arrive at an informed opinion on future market direction. http://www.marketoracle.co.uk

Disclaimer: The above is a matter of opinion provided for general information purposes only and is not intended as investment advice. Information and analysis above are derived from sources and utilising methods believed to be reliable, but we cannot accept responsibility for any trading losses you may incur as a result of this analysis. Individuals should consult with their personal financial advisors before engaging in any trading activities.

Nadeem Walayat Archive

© 2005-2018 http://www.MarketOracle.co.uk - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.


Comments

R.E.B
16 Jul 14, 14:02
Credit Lines

The point is, where are these payday lenders getting their money from? I cannot believe they have a genuine capital pool. Is it not the case that we have the BOE to thank for the explosion in payday lending that they are now trying to pretend to save us from, in that they provided the credit lines in the first place?


Nadeem_Walayat
16 Jul 14, 17:56
Bank of England

The Bank of England has always worked primairly for the BANKS, next printed money for the government.

Which is why the regulator did NOTHING for 5 years.

Best

NW


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