/ Payday Loans on OFT hitlist
Its about time.
Hideous bunch of companies exploiting customer with hideous APRs.
They need bashing but Stella Creasey wasn't impressive on Newsnight tonight......
> Its about time.
> Hideous bunch of companies exploiting customer with hideous APRs.
The APR does look horrendous, but that his not their fault - they have to give APR even if the loan is designed to last just a week. From the article YOU linked it doesn't look like the interest charged is the problem. It's their willingness to lend to almost anyone and methods of recovering the debt.
Just out of interest (no pun intended) what do you think is a fair amount in pounds to charge someone for borrowing £100 for 1 week, a charge to cover your admin and insurance against the debt failing to be paid?
If you only charged a £10 for this your APR would be ~14000 %.
APR's do look massively skewed because of the short term nature. Imagine borrowing £50 off a friend for a week, then giving him it back and buying him a pint as a thank-you. Technically you've probably paid a the equivalent of an APR of 5000% (well, you get what I mean).
I really don't know. I despise the ghoulish nature of these companies, preying on the piss-poor who can't get credit anywhere else, but I know that the alternative is a world of unregulated door-step lenders, and there's a whole sliding scale of bastardness with those guys.
My mum had a regular loan shark all the time I was growing up who was luckily quite a decent bloke (in that there was never any physical nastiness about him - if she couldn't pay, there was a shrug and a 'never mind, see you next week) and in fact he felt like part of the family in an odd way...but he must have leeched thousands of pounds off us over the years.
At the other end are the guys who take your benefit books, and even further down the scale are the ones who break bones.
I don't know. What do you do?
OK so my OP was probably a bit sensationalist, I admit, because I was watching Newsnight and the CEO of FridayFriday was being a bit slippery and was arguing a point which the NN researchers were testing in real time.
Nevertheless, I agree with Toad's interpretation. So if someone was hard up for a week and had a pay day loan of say £100 and paid interest of £20 (which includes processing costs for the lender) when they were paid, assuming that they paid off the loan in full, then I can see that this would help some people out of a hole and in principle offers a good service.
As Toad says, however, I would imagine that most just keep rolling over and rolling over and are not vetted properly in the first place.
These organisations are simply respectable loan sharks although Im not sure I can recommend and alternative.
The realistic alternative is community based credit unions.
Some kind of micro-finance works well in developing countries. Or as Nick says, community credit unions.
> Some kind of micro-finance works well in developing countries. Or as Nick says, community credit unions.
Why is there a vacuum that the payday loan companies are filling?
(seriously, I don't know much about credit unions, what it takes to set them up, why there aren't more of them etc)
> The realistic alternative is community based credit unions.
Which are going tits up on a regular basis.
I have a few mates who work for Provident, who are in the poor credit space, but not the same as payday lenders. Provi's APRs are comedic and they've been mentioned by Stella Creasey as being one who should have their APR capped. The issue is if their APR was capped they'd just stop lending to a segment of their customer base - who generally absolutely LOVE the fact they collect from them, in person, weekly and help them manage.
The payday lenders are different - I talk to people in the debt advice sector quite a lot and they say the customer base is different to Provi (who they're actually quite happy with) - the payday lenders have generated a market that wasn't there before - they lend to people who a few years ago would just have waited a few days til they got paid - now they borrow, roll over, default etc etc and before they know it they've got six or seven payday loans and are struggling to keep up.
Point being APR is, as someone's said, pretty irrelevant - what's important is the business model and the target market.
My wife works for the CAB, and 80% of clients have debt issues, which 80% of those have tried to foolishly fix with payday loans (and failed)
The basic response for those clients without any real assets is to tell all the people they owe money to that they are going to default via bankruptcy unless they reduce the amount of interest they are incurring to 0% and reduce the previous interest to 0%, and then they'll pay £2 a week for 20 years.
This works in the short term, but the people who get into problems can't manage the little money they have, and usually end up defaulting on the £2 a week too, because they needed 'fags' (or whatever).
What is needed is Martin Lewis to be given free reign in the Consumer Finance world IMHO.
The apr is outrageous, but so are the high street banks.
In the UK, or more so in the US? I'm only aware of N Yorkshire & Hackney over the last few years in the UK...
> What is needed is Martin Lewis to be given free reign in the Consumer Finance world IMHO.
Er - why?
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