Has time run out for payday lending?

It is true that they have had more than their fair share of bad press, being accused of 'widespread irresponsible lending', largely in response to the explosive growth of the industry and the need to remain profitable by offering quick cash without affordability checks.

The Financial Ombudsman Service recently revealed that there has been a huge rise in the number of people contacting them, many struggling financially, complaining that payday loan middlemen have drained money from their accounts, without providing them with the loan they were looking for. In some of the worst cases, consumers’ bank accounts were debited multiple times without warning – as their banking details were passed onto other credit broking websites. The ombudsman said that since April 2014 nearly 11,500 people have contacted the ombudsman to complain about credit broking websites, almost double the number in the whole financial year 2013/14.

So will these stricter measures on firms force payday lenders out of the market altogether?

While there have been reports that lenders remain slow to improve their practices, there does seem to be some improvement. But more importantly, there remains a need for this type of lending. Until a realistic and affordable alternative develops, payday loans remain the only mass-marketed option for short-term lending.

By forcing payday lenders out of the market, fewer people will get loans from fewer lenders, but the demand for credit will still be there. Better practices and clarity for consumers is a better alternative than forcing people towards unregulated methods of lending, and is the way that many firms are reacting to recent clampdowns.

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Wonga has recently taken the unprecedented step of creating the Open Wonga Website in a bid to be more open and transparent. Fewer - but more open and honest - lenders in the market could transform the way in which people shop for short-term credit.

Additionally, there is some responsibility on the part of the consumer to inform themselves about the cost of lending and which type of lending is suitable for them, for example the difference between a financial crisis lasting a few days, and the need for a proper long-term financial plan.

Payday lending does have the potential to help those in need, and for some can help them progress towards longer term finance. Modern living and the economic climate has created the need for quick online cash that can be borrowed and repaid quickly without the need to make a formal appointment - something that the mainstream banks can't yet provide.

There is currently a network of around 375 credit unions in the UK, that can provide affordable loans as well as savings accounts to members, however they do not yet have the capacity to serve the amount of people that currently use payday loans.

With fewer payday lenders, banks are likely to change the way they lend to consumers. Lloyds Banking Group is said to be considering offering smaller loans, while RBS plans to speed up the time taken to offer its existing range.

Furthermore, when previous payday loans are visible on a credit file, it can actually help banks to build a picture of how reliable an applicant is at repaying debt.

Payday lenders have previously taken advantage of major banks' inability to offer quick and easy loans, and it seems that the FCA's cap has at least seen banks begin to look at stepping into the market. But for now, while it seems to step in the right direction for the consumer and the industry, it seems unlikely that payday lenders will be squeezed out of the market.