Payday loans etc.

(51 Posts)
Extrospektiv Fri 21-Sep-12 12:02:28

In the past 5 years I have noticed more and more shops opening up as pawnbrokers/ cash converters style places and offering "payday loans". Now they even advertise on telly,like there's no shame in lending at ridiculous interest rates anymore.

Also the shops where you can buy furniture, tv's, washing machines and the like on "pay weekly". like if you had the cash you'd pay £10 for petrol to drive/ train ticket to a big shopping area and £120 for a particular tv... and these places are bringing in people on (already stupidly low benefits, thank you Bullingdon Cameron & Osborne) or who are working at less than 2/3 of a living wage, who don't have the £10 let alone the £120- and tempting them with just £3 a week!

Sounds good, you're sitting on the 17th floor of a block in east london. Redundant through no fault of your own. Going 2 hours across the city on foot to look for a new job because your benefits won't stretch to the "luxury" of a bus ticket, only to be told it's already taken and expected to go with nothing, and then you go home to a box with bare walls and a window where you can see coppers chasing old men with the 3-litre ciders outside. Actually having a TV isn't the evil thing that Daily Fail think, is it?

So you pay £3 a week. For 3 years. Which is... £468 for a telly worth £120. That's an example I made up but the percentages are pretty realistic.

Why doesn't the government just cap the prices and interest rates ALL these places charge? They're nothing more than glorified loan sharks. Closing them completely would leave people with nothing if they couldn't afford, but instead of charging businesses heavy redistributive taxation, why doesn't the government just stop them from making the exploitative profit from the poorest quarter of society in the first place? It seems to make sense and save time.

I know these tory boys wouldn't do it but Miliband should if he gets in. What do you think?

(And any benefit-bashers who say "it's their own fault", try living on it for a year with no support. I've never had to so if I can empathise you should be able to. "welfare-dependency" is a right wing fanatic catchphrase which does not describe ANY of the people I've known on it. and if you want to stop people stealing from the government go after the 7-8 figure tax fraudsters.)

LadyMaryQuiteContrary Sat 09-Mar-13 22:45:46

I must live in a low income area as I've had 2 letters from one of these legal loan sharks through my door offering me money since Christmas. I'm not impressed. They shouldn't target people this way. I don't have major debt, nor do I borrow. I tore the first one up, the next will be returned with a 'not interested' scribbled all over it.

HillBilly76 Sat 09-Mar-13 22:30:59

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ttosca Fri 08-Mar-13 18:19:41

In many other countries, 'pay day loans' are better regulated and there are caps.

Furthermore, I would agree that demand is a problem. But this government is doing everything it can to make people's financial existence more, not less, precarious. They are attacking social security and welfare, thereby increasing demand.

In countries where you have more of a safety net, people are less inclined to take outrageous loans. Obviously, nobody wants to take out a loan at %10000 or whatever unless they have no other choice.

HillBilly76 Fri 08-Mar-13 17:13:06

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kimorama Wed 27-Feb-13 11:03:30

Rip off pay day loans are illegal in most european countries. Our governemnt backs the worse part of the rat race.

ttosca Thu 07-Feb-13 17:08:01

You could very easily put a cap on the interest rates and still have companies making a profit.

The idea that using APR is misleading is misleading. It's true that these are supposed to be short-term loans, but the fact is that some people do miss payments and are unable to pay the amount back in time. This leads of further debts, which are also unpayable, and so a vicious circle is created.

One could put in legislation that not more than 200% of the original loan can be collected, but the truth is, it's about political will, not doing what is best for the public.

David Cameron is good mates with the chap who owns wonga.com so I can't see him doing much to stop these companies.

JakeBullet Wed 06-Feb-13 06:36:50

I had a loan from Provident four years ago when my marriage broke down, I moved into a rented house which was unfurnished and I literally had nothing to furnish it with. The £500 got me a secondhand cooker, sofa, beds and a fridge. I got a portable TV from Freecycle.

Provident sent me a letter setting out my repayment and the final (with interest) amount I would pay back. The £500 loan cost me £954 to repay which was massive. At the time though my exH had been defaulting on payments for months without my knowledge so my credit history was shot to pieces. At the time I was working and could easily afford the repayments. My neighbour uses Provident too but is on benefits....they come round the weeks her money goes in so she always repays them on time.

annasmith25 Wed 06-Feb-13 06:16:53

Lots of people say you need to avoid payday cash advances because they have a ton of hidden charges. This may not be more wrong though. Personal loan companies always make sure all their fees are very clear. If they do not, they might be in trouble legally. You can get a cash advance and feel secure knowing that you know all the rules. Get more information at: <a title="Feeling good about a payday loan" href="https://personalmoneynetwork.com/payday-loans/">Payday Loan</a>

Tcivi Thu 22-Nov-12 22:29:42

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CommunistMoon Thu 04-Oct-12 09:27:37

losingtrust they may write them off their balance sheet, but that means selling the debt on to someone else to collect. Sure, a lot of debts ultimately go unpaid but the payday lenders aren't suffering thereby.

losingtrust Wed 03-Oct-12 12:38:01

Sorry £1-2 per day if you go over. On a £10 overdraft that is high APR.

losingtrust Wed 03-Oct-12 12:33:16

The Halifax charge £5 per day if you go overdrawn. How is this any better? Most of these companies just write off loans that people do not pay back and will never off a loan to that person again.

SunWukong Mon 01-Oct-12 10:54:27

Credit unions are not an answer you need to join one of them with id the same way as bank, the majority of people using payday and pawn brokers, need money fast for a couple of weeks to pay the rent or a bill.

They know the interest is high tho few understand how high and many don't even read the small print on the pledges but they think they are going to be ok, they will pay it off next week when they get paid.

The real problem is this country is unaffordable for it's own people.

CommunistMoon Sat 29-Sep-12 23:29:55

Thanks adeucalione, that is interesting. I do agree that capping rates is not sufficient in itself, nor is improving access to affordable credit through banks and credit unions, but both would be improvements on the current position. The big underlying issues are all to do with underemployment, inadequate wages and rapid rises in the cost of living. As someone who works in the debt advice sector, I still maintain that payday lenders are making bad situations worse for too many vulnerable people far too much of the time.

adeucalione Sat 29-Sep-12 22:59:47

Interest rates are capped in some states but the majority of payday lenders in the US got around this by basing their HQ in a state where interest rates were not restricted, which allowed them to apply unfettered interest rates to loans issued at any branch. They also began to impose very high 'admin fees'.

An outright ban in Georgia did indeed push vulnerable people towards unregulated and unorthodox lenders.

On balance I think it's a shame that the bill to limit interest rates was not passed in May, whilst recognising that this measure alone would not be sufficient to protect people and may indeed have unintended consequences.

CommunistMoon Fri 28-Sep-12 21:56:59

The evidence I see every day is that people who have never previously resorted to loan sharks or even doorstep lenders like Provident are taking out payday loans to tide them over, can't afford to repay in full, roll them over and they swiftly spiral out of control. People on low to middle incomes whose pay has been frozen or cut, struggling with escalating food prices and utility bills - people who would no more borrow cash off some bloke on their doorstep than they would buy street drugs. Payday loans are heavily advertised and the lenders push them as mainstream, accessible financial products, so quick and easy to sort out online with the attendant reassuring feeling of privacy and anonymity. Those who were previously using loan sharks are still using them and very often they are now using payday loans, cheque cashing shops and pawnbrokers as well.

The payday lenders are predatory scum whose business model is predicated on making profits out of unmanageable debt. They left the US market and came over here because American state legislatures eventually found the balls to cap their interest rates. Maybe the next US govt will welcome them back with open arms because the poorest two-fifths are all getting kneecapped by loan sharks, I suppose we will have to wait and see.

CogitoErgoSometimes Fri 28-Sep-12 07:06:52

The evidence is there from past decades. It's also common sense. When you've got desperate people with no access to regular banking needing a hundred or two to tide them over, that's always been an opportunity for local loan sharks who are unregulated can charge what they like. I used to know a pub landlord in Port Glasgow who operated his own system. Would lend his regulars cash for the weekend and they'd pay him back with interest when they got their Giro money the following week. As most of the money got spent in his pub he did quite well out of it. No idea what his APR was... smile

CommunistMoon Thu 27-Sep-12 21:33:14

I don't buy the argument about loan sharks. Where's the evidence?

flatpackhamster Thu 27-Sep-12 11:14:53

CherryBlossom27

Thank you for correcting me flatpackhamster. Out of interest are you happy with the current set up, if not, what would you change to improve it?

I can't say that I know a huge amount about the current set-up, but I probably know more than the politicians and do-gooders who are gnashing their teeth.

Look, when you're skint you've got two choices. You go to a company like this, or you go to a loan shark. So long as these companies operate within the law, and so long as someone who feels unfairly dealt with can take their case to the FSA, I don't have a problem with them.

I don't like them, but I think that capping interest rates is going to push more people away from them and in to the arms of loan sharks.

CherryBlossom27 Thu 27-Sep-12 11:06:14

Thank you for correcting me flatpackhamster. Out of interest are you happy with the current set up, if not, what would you change to improve it?

flatpackhamster Wed 26-Sep-12 17:42:02

CherryBlossom27

I read the other day that one of the owners of Wonga is a Conservative Party doner so it's unlikely this govt will do anything about these type of companies.

You didn't read that at all.

What you read was that a venture capitalist, Adrian Beecroft, who put money in to Wonga.Com, is a donor to the Conservative party.

Wonga.Com being set up under the previous government, and not being closed down by them either, suggests to me that your conclusions are unreasonable.

Personally I agree there should be a cap on interest rates, 4000% with a payday lender as opposed to 19% for an overdraft with a high street bank is appalling and I don't see how it is legal or justified.

The reasoning - unpleasant though it is - has been laid out very clearly in this thread. The cost of credit has to reflect the risk.

If you cap the interest rate, then payday loans companies won't offer that product and the people who want to borrow will go to loan sharks instead of businesses regulated by the FSA. I don't think that's a better outcome.

niceguy2 Wed 26-Sep-12 10:56:00

I think the headline figure of 4000% whilst technically correct is very misleading when it comes to how these companies work.

Your payday loan companies specialise in short term loans. Typically up to a month. APR is calculated annually so it's not a very good measure.

Plus bear in mind that if you are borrowing £200 for a month, there is the Interest but the company has to also factor in the business costs.

So typically a charge of £50 may seem hefty on a £200 loan for a month. But then who is going to lend £200 to a person with poor credit history for say a fiver? It's simply not worth the time, effort of risk.

Plus bear in mind that someone has to be paid to fill in the forms, process it, get the money to/from the bank. Collect the money afterwards. Chase people if they fail to pay up. Not to mention all the other business costs.

I do think we need to tighten up the rules on these companies and their rapid growth does concern me. But at the same time if we force them to all shut up shop then surely less legit loan sharks will simply replace them.

CherryBlossom27 Wed 26-Sep-12 08:55:22

I read the other day that one of the owners of Wonga is a Conservative Party doner so it's unlikely this govt will do anything about these type of companies. Personally I agree there should be a cap on interest rates, 4000% with a payday lender as opposed to 19% for an overdraft with a high street bank is appalling and I don't see how it is legal or justified.

CogitoErgoSometimes Wed 26-Sep-12 08:46:13

Maybe, in your case, it is. I used to be married to a spendthrift that could run up debts like there was no tomorrow. This was way before the days of easy credit and payday loans. It's tempting to blame the bank.

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