Nearly half of all payday lenders have pulled out of the UK market in the last 18 months. The UK’s high-cost short-term credit market has been coming under relentless pressure from the media and campaigners to change its ways.

Jennifer Tankard, the director of advocacy and research at the Community Development Foundation and leader of the Community Investment Coalition, noted that the Consumer Finance Association, the trade body for payday lenders, has repeatedly expressed concern about the impact of regulation on the industry, arguing that a regulated and innovative financial services industry will be replaced by unregulated and illegal lenders.

While the number of payday loan providers may be declining, credit unions and community development finance institutions (CDFIs) are slowly scaling up and offering a wider range of services, such as short-term loans, at affordable prices. The government is investing £38m to support credit unions to modernise and grow. The Community Development Finance Association, the trade body for CDFIs, estimates that in 2013, almost 10,000 small and social businesses were able to launch and grow with a CDFI loan. These businesses created and saved more than 17,000 jobs, many in the UK’s most disadvantaged neighbourhoods.

However many of the credit unions and CDFI’s potential customers are not aware of their existence. Community projects such as Big Local and Community First are helping to tackle this. The £38m invested in credit unions is almost the same amount as the top five payday lenders spent on advertising in 2013 (an estimated £36.3m). The financial services market remains still distorted.

In an article in the Guardian, Jennifer Tankard summarises the need for tighter regulation of payday lenders and the scaling up of credit unions and CDFIs to serve poorer communities.