PURELY coincidental, but it’s interesting that the Competition & Markets Authority’s (CMA’s) clampdown on online payday lenders comes on the day Wonga unveils plans to shed more than a third of its 950-strong workforce in an effort to save £25 million. The coincidence does make it seem the net is closing in on what seemed to be becoming an ethical free-for-all in the banking sub-sector.
That reached one of its low points when Wonga – one of the biggest players in payday lending – saw its profits halved last year after the Financial Conduct Authority made it pay £2.6 million compensation for sending fake legal letters to customers demanding payment.
The pressures on the sector were also highlighted yesterday by Wonga saying it is quitting its lending for small businesses.
Meanwhile, the CMA, in its final report on a 20-month probe into the market, is ordering payday lenders to publish details of their products on at least one price comparison website.
The idea is to make it easier for borrowers, often those in tight financial circumstances for obvious reasons, to shop around in order to get the best deal. Having taken a welter of evidence, the CMA estimates that the UK’s 1.8 million payday loan customers could be up to £60 a year better off it if was made easier for them to compare what’s on offer.
The regulator found evidence of a lack of clear and comparable information on the cost of the loans, late fees and additional charges, which, to be fair, is not just limited to the payday lending stretch of the banking waterfront.
The CMA is also recommending the Financial Conduct Authority, the regulator charged with monitoring the smooth running of financial markets, to remove the confusion for many borrowers around so-called “lead generators”.
These are the websites that sell potential borrowers’ details to lenders and through which 40 per cent of first-time online borrowers access their loans.
But the CMA says the ambiguity surrounding the sector, which has come on in leaps and bounds in the austerity age ushered in by the financial crash and coalition government, is shown by the fact that many customers wrongly think the lead generator is the ultimate lender of the money, not the middleman facilitating the transaction.
The regulator’s report is a step in the right direction of making the payday loan industry more intelligible and therefore useful.
Aldermore’s float looks set fair this time
ALDERMORE’s resuscitation of its plans for a public listing will give a bit of momentum to the IPO market. Sensibly, the challenger bank and its advisors are also seeking to leave something for the next investor post-inflation if reports are to be believed.
The reason for its first float being pulled last autumn had much to do with institutional investors believing the valuation of £800m was toppy, even for a bank with a decent track record since being launched in the financial crash.
Aldermore, perhaps a little chastened, is said to be looking at a valuation of between £600m and £650m this time.
The same amount of money will be raised, £75m, and it should give the business some additional financial firepower to pursue further what has been an impressive organic growth story
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