MSE News: Stella Creasy: Action needed NOW on payday lenders

Stella,

Couldn't agree more with this campaign. The sky high cost of borrowing for pay day loans (and to be fair some authorised and unauthorised overdraft charges) is a burden on society and has zero social value as a business activity.

My simple rules would be:

1) to cap any lending activity so that the maximum you can pay back over a 12 month period with the same lender would be twice what you have borrowed with a maximum 'fee' included of <£12 for setting up the original credit agreement/ searches/ fraud checks and paperwork.

2) Cap the total amount of unsecured credit that any individual can have at months income at time of application - any lender who didn't adequately check affordability or who lent over this limit would have the amount over the limit written off.

3) Give consumers the default option of a current account which does not go over limit with a maximum £1 charge per item that is rejected to cover any administration costs with an emergency buffer of £200 that can only be activated by contacting the bank or going online.

I believe that the combination of these would dramatically curtail the worst industry excesses and the problems caused by easy credit and debt that are a burden on society as a whole.

Good luck with your campaign.

R.

I'm always torn on this issue. What exactly are the people who genuinely need the loan, but because of the capped interest etc. can't now get it, meant to do? It seems slightly unfair to penalise them because of other people being irresponsible (you can't lend irresponsibly if someone isn't trying to borrow irresponsibly...).

While this has reached the point where something really should be done, "protecting" the people who wreck their own finances always comes to the detriment of someone else, so you need to be careful how it's done. Saying that, the suggestions given in the first post seem pretty reasonable to me (except for the last point - it's both unfair, and quite possibly illegal, to force banks to give overdrafts to everyone).

callum9999 wrote: »

I'm always torn on this issue. What exactly are the people who genuinely need the loan, but because of the capped interest etc. can't now get it, meant to do? It seems slightly unfair to penalise them because of other people being irresponsible (you can't lend irresponsibly if someone isn't trying to borrow irresponsibly...).

While this has reached the point where something really should be done, "protecting" the people who wreck their own finances always comes to the detriment of someone else, so you need to be careful how it's done. Saying that, the suggestions given in the first post seem pretty reasonable to me (except for the last point - it's both unfair, and quite possibly illegal, to force banks to give overdrafts to everyone).

I don't have a problem with the high APR, so long as it is kept to the loan term only...

UsetheFORCE wrote: »

Why even have a term then? You might as well have it as a revolving credit facility!

So are you saying the interest rate should drop if the loan is not repaid as per the contract?

That would make no sense at all.