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MSE News: Citizens Advice calls for tighter payday loan regulation
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Former_MSE_Helen
Posts: 2,382 Forumite
This is the discussion thread for the following MSE News Story:
"Payday loan debt has quadrupled over the last two years, so the charity is now calling for tighter controls ..."
"Payday loan debt has quadrupled over the last two years, so the charity is now calling for tighter controls ..."
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Comments
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From the article :-
I suspect that the vast majority of pay-day loan customers were already in financial difficulties before taking out these loans.But Citizens Advice says it is too easy for consumers to obtain short-term credit. It has seen the numbers asking for help with debt problems after taking out a payday loan quadruple in May to July this year, compared to the same period in 2009.
Are we in danger of pushing these customers into the arms of illegal lenders rather than making them face their debt situation?
Warning: In the kingdom of the blind, the one-eyed man is king.
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Consumerist wrote: »Are we in danger of pushing these customers into the arms of illegal lenders rather than making them face their debt situation?
While not everyone using pay day loan companies is already in financial trouble, significantly increasing your debt through massive penalties is not helping you face it - it just creates a downward spiral of hopelessness. People in such a condition won't have the assets to pay back what they owe even if you forced them.
While I'm a saver rather than a borrower, my local credit union makes applicants go through a whole statement of affairs and provide information on individual existing creditors, at least 60 days' bank transaction history and proof of income before you get any money. Contrast one payday loan company's statement: "[...] not a typical internet lender because there's no need to fax documents or hang about on the phone. Application and payment is entirely online because we have a sophisticated credit reference system." There is no computerised repository of data which comes even close to requiring the prospective client to document and present his financial situation.0 -
"I suspect that the vast majority of pay-day loan customers were already in financial difficulties before taking out these loans.
Are we in danger of pushing these customers into the arms of illegal lenders rather than making them face their debt situation?"
"While not everyone using pay day loan companies is already in financial trouble, significantly increasing your debt through massive penalties is not helping you face it - it just creates a downward spiral of hopelessness. People in such a condition won't have the assets to pay back what they owe even if you forced them."
Both make good points, however what I am interested in is why they exist in the first place. Clearly some are praying on those already in trouble and making a profit out of this is a pretty poor show IMO. However I don't really have a problem with the well run ones (I forget the name of the one that clearly spells out how much you will pay and offers loans to be extended or paid off quicker with no penalties), people turn to them precisely because it is usually difficult to get a straight answer out of the banks.
The comment about additional charges applies equally to banks, and thier snowball effect can be much worse - there is a reason why the first peice of debt advice is usualy open a parachute account...Mixed Martial Arts is the greatest sport known to mankind and anyone who says it is 'a bar room brawl' has never trained in it and has no idea what they are talking about.0 -
In my experience (as a debt adviser) many people with payday loans are already in debt due to some sort of income shock such as bereavement, divorce or job loss. The people I see don't use them to go out for a Saturday night "on the town".
Payday loans do serve a purpose. As others have pointed out, they are better than loan sharks, and in areas where Credit Unions are not available and the client already has one or more doorstep loans, &/or they are not on the right benefits to get a Social Fund loan, this is sometimes the only option to tide them over.
My issue is the speed at which the loans increase beyond what is a reasonable cost, when the customer is in financial difficulties and cannot repay within the required time. I know they advertise their rates up front (2000% APR anyone?), but some sort of cap on the amount that this can increase to seems a reasonable thing to consider. The Payday loan industry has developed a code of practice, which I for one will be monitoring closely. My clients have often been given loans even though they have shocking credit records, and when we try to negotiate repayments which they can afford, the interest and charges continue to mount making their situation worse.
nervous but determined 0
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