Payday loan lenders have become household names, but the history of credit goes back thousands of years. As early as 1300 BC, the Assyrians and Babylonians lent money on the security of mortgages and advance deposits. Three hundred years later, the Babylonians had devised a basic form of the bill of exchange, using a third party. In the time of the Pharaohs, Egyptians were also trading property in instalments. Credit bills of exchange and promissory notes were widely used by the Romans to prevent the dangerous practice of dealing with unfriendly foreign traders.

Roman farmers needed to regularly borrow from wealthy individuals to plug the financial gap until harvest time.  These early private transactions were effectively lending on similar terms to today’s payday loans.

The establishment of the first permanent colony in New England gave rise to the first recorded use of open credit in America’s early history. Thomas Weston put together a group of wealthy merchants who financed the Mayflower trip and in return, the Pilgrims were contracted to work for a period of seven years. The original sum of £1,800 could not be paid after seven years, so an alternative arrangement needed to be made. It was agreed that £200 would be paid each year for nine years, although it wasn’t fully paid back until 25 years later.

By the late 1800s, payday lending was pretty normal among British labourers who could not obtain bank accounts. Pawn-broking was also becoming the norm. Door-to door loan sharks began to lend money by devious means, and tended to collect their money in very heavy-handed ways.

The payday-lending industry as we know it originated in the US in the early 1980s. The deregulation of interest rates created by the Depository Institutions Deregulation and Monetary Control Act of 1980 allowed lenders to offer high APR in exchange for quick and easy loans.

By the 1990s the Money Shop, a payday lender owned by US company Dollar Financial Corp, grew  from one shop in 1992 dealing largely with cheque cashing, to 273 stores and sixty-four franchises across the UK in 2009. Many of the biggest payday-loan companies in the UK are still owned or controlled by a US company.

The industry has grown from £100 million to an incredible £2 billion in the past ten years.

Legislation coming into force in 2014 is intended to force payday lenders to have a ‘cap’ on the maximum interest rate they can charge, as part of the amendments to the Financial Services Bill. This new cap is to be included in the Banking Reform Bill, which is currently going through Parliament.