Millions have been left behind by the payday loans crackdown | USAEMALL.com

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This article is the latest part of the FT’s Financial Literacy and Inclusion Campaign

Everyday Loans is getting a facelift. The subprime personal lending company that typically offers £3,000 loans last month rebranded as Evlo and the signs on its branches are being replaced. “This is a good business that has had some bumps and scrapes,” insists Jono Gillespie, chief executive.

While Evlo has been repaired, much of the UK high-cost credit sector was written off in a regulatory and reputational crash. What was a thriving, if little respected, industry is far smaller than before the downfall of commercial lenders such as Wonga, Amigo Loans and Provident Financial. Price caps, compensation claims and a torrent of bad publicity have diminished it.

Gillespie grew up in Hemsworth, a former pit town in West Yorkshire, and worked for both Provident Financial and Non-Standard Finance, Evlo’s former parent. He and other industry veterans lament the mass retreat from the market of banks and others. “Some of that lending was not right but a lot was needed and the people who filled the gap are loan sharks.”

He has a new brand to promote but others who know the subprime credit industry, and fear for the millions who rely on costly short-term loans to get them through trouble, concur. “I never thought I’d say this when I started, but we absolutely need [high-cost lenders],” says Kate Pender, chief executive of Fair4All Finance, a financial inclusion organisation.

Charles Randell, former chair of the Financial Conduct Authority, which oversaw a regulatory crackdown, argues that abuses such as loans being flipped among lenders and borrowers staying permanently in costly debt have to be corrected. But while “the balance was for the good”, he accepts that the credit squeeze has had some bad effects.

Evlo customers tend to have a thin credit file or a subprime credit rating, and cannot get a loan from a high-street bank. They are not indigent: Evlo estimates they have an average annual income of £31,000. But they have little or no savings and cannot ride out a loss of income, or a washing machine or car breaking down and needing to be repaired.

“These are the people I grew up with. Someone needs to help them and the banks will not do it,” Gillespie says. More than 80 high-cost lenders left the market between 2019 and 2024 and none entered, according to the CCTA trade association. The consulting group LEK estimates there are 16mn people who cannot access prime credit, leaving a credit gap of £2bn.

This is exploited by illegal lenders, from organised rings to what Gillespie calls “the guy in the King’s Head who will help you out” but charges more and is more intimidating to defaulters than the commercial lenders he has replaced. Fair4All Finance, which helps to support credit unions, found that 3.3mn people had used illegal lenders over a three-year period.

Commercial lenders face stigma and regulatory perils because they charge elevated interest rates to make up for high levels of default: Evlo’s loan annual percentage rate ranges from 28 to 250 per cent. But headline rates at non-profit Community Development Finance Institutions are also high for short-term loans. Pender describes APR as “a useless measure” for such lending.

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Companies such as Provident once operated through a network of part-time agents to collect interest face-to-face and agree deferrals. Evlo markets loans online but credit checks are done on the phone or in branches: “You get a better feel for people when you meet them face to face,” Gillespie says of its often stressed customers.

Evlo was taken over by its lenders, led by the credit fund Alcentra, when NSF went down, but other investors have been put off the industry by the wave of compensation for past lending judged unaffordable by the Financial Ombudsman Service. The Treasury has convened a financial inclusion committee of industry figures to find answers.

Pender, a member of the committee, believes that the UK should take a lead from the US Small Dollar Loan Program by giving lenders a safe harbour for small loans on set terms. This could draw in more banks by shielding them from regulatory risks and future compensation claims. Without some intervention, many people will remain financially excluded.

The high-cost lending crackdown that started in 2014 with regulatory price caps was effective in eliminating abuse in the regulated market, but it took much of the industry with it. Evlo has changed its name but the demand for the loans it provides has only grown.

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