I have written often about payday loan companies; and so have many financial journalists. There’s been loads of scrutiny and discussion; nothing much really happened. But now something really is happening and it seems set to force many – maybe most – of these companies out of business.

According to last week’s edition of The Economist, the Financial Conduct Authority (FCA) predicts that when the new cap on interest rates comes into effect in January, “all but four of Britain’s 400 payday lenders will exit the market.”

If the FCA’s prediction is accurate, that is staggering. But my question is: where will the former clients of all the other payday loan companies go? Their financial situation won’t improve overnight just because a source of expensive finance isn’t on the market anymore. I’m sure that many, perhaps most, people who borrow from payday lenders do so because a low credit rating doesn’t allow them to get loans from ‘high street lenders’. I suspect that not many of them say, “3000% interest? That seems like a good deal; I want some of that.” In other words, these firms are lenders of last resort. Where do you go if your last resort disappears overnight?

Earlier this month, in a feature in the ‘i’, the cut-down version of The Independent, the headline on Andrew Hagger’s article read, “Ignore payday lenders to improve your credit rating.” Among alternatives, he mentioned the Amigo loans that are widely advertised on daytime TV (so I’m told; I never watch daytime TV, oh no, not me). They have a vastly lower interest rate (49.9%) … but you need a creditworthy guarantor.

That brought him on to credit unions, about which I too have written in the past. They are great for small loans, with reasonable interest rates (typical APR 12.7% on the reducing value of the loan), but there just aren’t enough of them.

Maybe this seismic change in the payday loan industry will enable a rapid growth in the availability of finance from credit unions. We shall see; meanwhile I plan to visit my nearest one and find out how their plans have changed in the light of the payday loans shakeup.

Watch this space.

WANT TO KNOW MORE?

To find out where your nearest credit union is, visit www.findyourcreditunion.co.uk or phone 0161 832 3694

For Andrew Hagger’s article in the ‘i’ (“Ignore payday lenders to improve your credit rating”), click HERE.

For the article in The Economist (“Nudge nudge, think think”), click HERE.

Andrew Hagger is an independent personal finance analyst from www.moneycomms.co.uk