MSE News: Payday loan firms claim unfair treatment

If its the difference between a loan shark and payday guys I know who I would prefer.

Where is all their happy customers then eh?

I took out a payday loan purely to get the cashback off quidco. I didnt need the loan so just got it paid into an account I dont use and added the interest ready for them to take on my payday.
Whilst waiting for them to take my payment I have had 3 calls from people giving me the option to defer my payment or look at other repayment options. I have also had numerous texts and emails that say I just have to reply and my payment is defered. None of these have mentioned that it might cost me more to do this or how much it would cost although given that the interest on the initial loan is over 25% I can only imagine it would be similar.
I can see how easy they make it for people who are generally struggling to end up owing a fortune without even realising it.

The CFA says in a recent study, more than nine out of 10 customers believe payday lenders treat customers with respect.

But what has that got to do with third parties encouraging deferred payments at undisclosed cost. Who could have informed these third parties about the pay-day loan except the pay-day loan companies themselves.

Was this recent study an independent study?

sallyeh wrote: »

How are they misunderstood? They lend money for short terms to vulnerable people at interest rates that translate as roughly equivalent to 1200%. Useful service?

If you want a comparison just go over to Zopa and borrow a thousand Pounds for a £130 fee* then repay fully after one month. The result is about 155% effective interest charge. Repeat twelve times and you're at over 1800% for the year. Unlikely that Zopa would let someone do this but it does illustrate how expensive even those often thought of as good guys can be for short term borrowing. Zopa and lenders there definitely aren't loan sharks even though the borrowing can have these very high APRs if it's used for a short term loan and few lenders have a licence to lend, because none is needed.

Now compare to bank charges in an unauthorised overdraft. Again the payday lenders look inexpensive by comparison with mainstream credit.

Social Fund or doorstep lenders are typically going to be substantially cheaper than either payday lenders, credit card deals or fee up front other lenders for short term borrowing.

What's important is using the right form of credit for the situation and eliminating unlawful and regulation-breaching conduct from the market. MSE's pending guide should hopefully help to improve people's awareness of the less expensive options.

*the Zopa fee varies based on market conditions and often is different for different loan amounts and terms. The cheaper way to borrow for only a month via Zopa is to cancel the loan and then return the money close to the end of the time allowed for this. This avoids the fee but still allows keeping the money for a month.

Declaration of interest: I've had a loan via Zopa and have offers to lend in the Zopa markets that are currently unlikely to result in any actual lending. I do not have a Consumer Credit Licence to lend from the OFT.