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More short term lenders go to the wall: But is this a cause for celebration?

18 December 2019 Written by Stephen Cowan Category: Blog

MMP Financial, trading as "My Money Partner" and "Swift Sterling", has gone into administration. Both businesses offered loans of up to £1,500 over periods ranging from two to seven months, with the entire process being completed online. "Piggybank" another short term lender, collapsed 24 hours prior to MMP Financial’s administration, leaving their 45,000 customers in a state of financial uncertainty. Piggybank offered loans of up to £1,000 to new customers for up to five months. Interest due on the borrowing would typically equate to an annual percentage rate (APR) of between 1,255% and 1,698%. In addition, in 2019 Wonga and Instant Cash Loans also collapsed.

In all situations where lenders fail, no further advances will be made although all borrowers will be obliged to service their loans in the usual way. The appointed insolvency practitioners will advise them what to do.

As yet, no specific reasons have been given for the lenders’ collapse. However, they will no doubt have been under the Financial Conduct Authority's spotlight. The FCA has often criticised short term lenders for advancing loans to individuals without having first carried out adequate affordability checks which they are required to do to comply with their regulations. Such failures can result in complaints by claims management companies on behalf of the borrowers. Even if a complaint is not upheld, this can result in a cost to the lender of approximately £500. Some lenders will have found these costs to be crippling and will have no doubt contributed to their poor performance, if not their insolvency.

Whilst many commentators will be delighted with the demise of so many short term lenders, it is not without consequences - many of which will be unwelcome. To start with, there is obviously a demand for the service. With the market contracting, it is reasonable to ask where such individuals will be able to source credit. Even some not-for-profit credit unions have withdrawn from the market, making the position worse. Will those looking for credit go to loan sharks or other non-regulated sources of finance? One certainly hopes not.

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