MSE News: Payday loans: tough action needed from summit

Former_MSE_Helen · 1 July 2013 at 5:10PM

"We are calling for strong action, not hot air, to protect people from unscrupulous payday lenders..."

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Payday loans: tough action needed from summit

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shinkyshonky · 1 July 2013 at 8:48PM

Hot air...

As you said yourself Martin...too little...too late...and no-one will do anything till April 2014...if at all...

Bazofts_Revenge · 1 July 2013 at 11:51PM

Very surprised no one else has noted the Archbishop of Canteburys intention to use the Churches wealth to set up Credit Unions or provide help to local Credit Unions to drive Payday Lenders out of business.

Avon2001 · 3 July 2013 at 8:12PM

This probably won't make me popular around here, but frankly I think the government should leave well alone. I'm no fan of these companies but they are a step up from loan shark, which is where people will end up without them. Personally, I'd say it was far more important to look at why so many people have issues with money, for example the fact that vulnerable people often get messed about with benefits. IMO this campaign takes the heat off the very people who should have it put on them.

John1993_2 · 4 July 2013 at 9:02AM

Bazofts_Revenge wrote: »

Very surprised no one else has noted the Archbishop of Canteburys intention to use the Churches wealth to set up Credit Unions or provide help to local Credit Unions to drive Payday Lenders out of business.

I suspect that he's going to get a salutory lesson in economics if he goes down this route. Payday loan companies are not vastly profitable, meaning that there is not a huge amount of room to reduce charges or interest if you want to offfer a service to the same customers.

There's a reason that payday borrowers don't use credit unions already, and it's often going to be down to their inability to meet their criteriia. Trying to offer credit union rates to a payday loans customer base is going to result in major losses.

JuicyJesus · 4 July 2013 at 5:30PM

John1993 wrote: »

There's a reason that payday borrowers don't use credit unions already, and it's often going to be down to their inability to meet their criteriia. Trying to offer credit union rates to a payday loans customer base is going to result in major losses.

Indeed. The reason the interest rates are so high is because the risk is so high, as payday loan companies will lend to people who other lenders won't touch. Something like 50% of payday loan customers default on their obligations.

If people who took out payday loans could get credit with non-payday loan interest rates, they would. They just can't.

antrobus · 4 July 2013 at 6:21PM

JuicyJesus wrote: »

... Something like 50% of payday loan customers default on their obligations....

I'm not so sure that statement is quite accurate. I don't think a PDL co who had half its customers defaulting would survive very long.:)

Now I wouldn't be surprised if the cost of bad debts for your typical PDL comprised 50% of revenue, but that's not the same thing. The thing to understand about the PDL business is that it is about short term lending, so you're continuously turning over the loan book, so even a small percentage of non-paying customers can have a big impact on the bottom line.

Wonga, for example, claims a default rate of 7% (by which it means the charge off rate - bad debts written off as a percentage of average loans outstanding) but that equates to 41% of revenue. Or at least it did in 2011. So if it had a default rate of 20% it would be buster than the Co-Op.

JuicyJesus wrote: »

... If people who took out payday loans could get credit with non-payday loan interest rates, they would. They just can't.

There is a certain stigma I understand with CUs, in that a lot of people won't touch them because they're for 'poor people'. But nevermind, CUs don't make decisions within 15 minutes and with an maximum of APR of 26.8% they don't have the headroom to take much in the way of risk.

John1993_2 · 4 July 2013 at 6:43PM

One thing that I think is worth repeating (on many threads) is that the high rates that are charged by these lenders are caused pretty much entirely by the characteriistiics of their customer base.

Unfortunately there seems to be a tendency amongst too many payday loans users either to borrow recklessly (i.e. to borrow when you are working but in a casual job with no redundancy package if let go), or to actively avoid paying back the loan. As the numbers above show, only a small fractioon need to be delinquent to cauuse rates to go through the roof.

I had a (sobering and annoying) example of this close to home recently. A young relative had got himself into a mess a while back with payday loans, and had been bailed out by family. He knows that he was stupid, was ashamed, and resolved to be more sensible in future. Fast forward to last month, and he wanted to borrow a couple of hundred pounds, off me, to head off to Ibiza with his friiends. I thought it pretty cheeky to ask, but he's just had a decent pay rise, and promised the full balance one month after he returned.

Fast forward again to the day he's promised to pay it back. It was getting towards evening, so I pinged him a message just to check that he's not forgotten. It turns out that he'd not forgotten, and just casually said "Oh, yeah, I'm going to pay you back next week, when I'm paid".

No warning ahead of time, no apology, no realisation that I expected him to stick to our deal. He'd not even bothered to stop posting on facebook about his nights out in between. I'm flabbergasted. This is a loan that he was well able to afford to return, to a family member, who helpped him out as a favour, and even this seems to have become optional to repay on time. How can someone have made it to adulthood without the vaguest understanding of prudence, honesty, responsibility, or obligation?

JuicyJesus · 4 July 2013 at 7:22PM

John1993 wrote: »

Fast forward again to the day he's promised to pay it back. It was getting towards evening, so I pinged him a message just to check that he's not forgotten. It turns out that he'd not forgotten, and just casually said "Oh, yeah, I'm going to pay you back next week, when I'm paid".

I'm willing to bet that a good portion of the people whinging on here about bank and payday loan scams and ripoffs have the same sort of mindset. Basically, "oh but if I pay this back now I won't have money for nice things, I'll just pay it back in a week more", and suddenly they're shocked when the bank are asking them to pay it back as agreed.

Gentoo365 · 4 July 2013 at 8:24PM

John1993 wrote: »

A young relative had got himself into a mess a while back with payday loans, and had been bailed out by family. He knows that he was stupid, was ashamed, and resolved to be more sensible in future. Fast forward to last month, and he wanted to borrow a couple of hundred pounds, off me, to head off to Ibiza with his friiends. I thought it pretty cheeky to ask, but he's just had a decent pay rise, and promised the full balance one month after he returned.

He will probably be on here later starting a thread on mis-selling.and asking how he can get compensation from you for providing a loan he could not pay.

John1993_2 · 4 July 2013 at 11:11PM

JuicyJesus wrote: »

I'm willing to bet that a good portion of the people whinging on here about bank and payday loan scams and ripoffs have the same sort of mindset. Basically, "oh but if I pay this back now I won't have money for nice things, I'll just pay it back in a week more", and suddenly they're shocked when the bank are asking them to pay it back as agreed.

It was the casual attitude that surprised me. No contrition, no notice, no concept that I might be upset if he just kept quiet and welched on the deal.

I borrowed a big chunk from my wife when we remortgaged recently (five figures) as we wanted to close the deal a week before a payment hit my account. I hated every second that I owed her, and paid it back the second the funds came in. I thought that this was normal, but suspect that it's now not.

MSE News: Payday loans: tough action needed from summit

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