The Money Shop - irresponsible lending?

Tee-Es

Today I found a leaflet from The Money Shop in my letter box.

The leaflet offers so-called "Payday Loans" of "up to £500".

A closer look seems to reveal that, exemplary, in order to obtain a loan of £100 one has to hand over a cheque to the value of £100. In return the loanee receives £90.01 in cash immediately (£9.99 fee), and the cheque is then supposed to be cashed in after 30 days.

A quick calculation (£9.99 x 12.17 = £121) leads to an annualised interest rate of roughly 135% on the inital loan of £90.01! I find such interest rates ethically extremely irresponsible, in particular as only vulnerable people are likely to try and take out this loan!

Furthermore, the leaflet quotes "260.2% APR typical", which, according to my calculation, is twice the amount quoted in the example in the leaflet!! This means that by using an untypical loan example they are effectively making misleading claims on their typical fees and charges. Needless to say this only serves the purpose of 'laying a bait'.

There is also a second risk: if the lender "accidentally" cashes in the cheque too early the loanee has the additional burden of bank charges from their bank which they probably tried to avoid in the first place!

===================================

What can be done here? If this isn't irresponsible lending I don't know what is.

I am not adhered to the Christian faith but it is said that Jesus Christ (who was not particularly known for being violent ) angrily toppled the tables of greedy money changers and threw them out of the temple in Jerusalem! If I do the same today I'll end up in court.

Comments are appreciated.

Tubbss

Hi,

Your calculations are about right but flat rate of 135% does just about equate to an APR of 260%. There is a difference between the flat rate and the APR as APR calculates the annual rate but this is a short term loan of 30 days. For example, if a friend was to loan you £100 and the next week you gave hiim back the £100 plus a tenner for thanks, then that would equate to an APR of over 3000%

Enfieldian

Why is it that every few days there is a post about "astronomical interest rates" and "irresponsible lending"?

Do you currently use any of these companies? If not why are you so concerned?

There is also an analogy to explain the SHORT TERM (capitals means - important bit) interest rates that some posters use, it involves borrowing £20 from a friend for a week or so and buying them a pint as a thank you. (Edit - something similar has already appeared in the post above) Ergo, £10 for a £90 loan is reasonable if a company actually dares to want to make some form of profit and keep in business.

Before posting your next thread, please check to see if 100s of other similar threads have already been posted, it saves you from looking like a knob.

Tee-Es

Enfieldian wrote: »

Why is it that every few days there is a post about "astronomical interest rates" and "irresponsible lending"?

Do you currently use any of these companies? If not why are you so concerned?

No, I don't use any of such companies. Luckily, I am not in a position to rely on what I believe to be unethical business practises. The latter was the reason for my thread. I thought it was obvious from the tone of my post that I have tried to talk about a social issue.

There is also an analogy to explain the SHORT TERM (capitals means - important bit) interest rates that some posters use, it involves borrowing £20 from a friend for a week or so and buying them a pint as a thank you. (Edit - something similar has already appeared in the post above) Ergo, £10 for a £90 loan is reasonable if a company actually dares to want to make some form of profit and keep in business.

Before posting your next thread, please check to see if 100s of other similar threads have already been posted, it saves you from looking like a knob.

I apologise but I find the tone of your post unnecessarily patronising, not very constructive, and I don't think expletives (knob) really help. Firstly, the fact that many of such threads are appearing SHOULD (capitals means - important bit) (sic!) tell you that there may be an issue worth discussing. Secondly, I don't think making £10 from a £90 loan in a month is ethical as it comes from out of nothing but in general, if the issue of this thread is covered elsewhere I'd be grateful for a link.

Other than that I apologise if I have posted on a topic that's been discussed to death elsewhere...

ILW

You do not use these companies, are you saying that others should not be allowed to?

Fang_3

No. They are a business, not your grandmother. People are not forced to take the loans, so it comes down to personal responsibility.

Enfieldian

tee-es wrote: »

no, i don't use any of such companies. Luckily, i am not in a position to rely on what i believe to be unethical business practises.

Good for you. Mind your own business then.

The latter was the reason for my thread. I thought it was obvious from the tone of my post that i have tried to talk about a social issue.

Social issue as defined by whom?

I apologise but i find the tone of your post unnecessarily patronising, not very constructive, and i don't think expletives (knob) really help.

I am really so very, very, sorry if I upset your gentle "socially aware" mindset, will you be alright? "Knob" is not an expletive you knob.

Firstly, the fact that many of such threads are appearing should (capitals means - important bit) (sic!) tell you that there may be an issue worth discussing.

No, it tells me that a lot of people that don't understand APRs and don't have anything better to do have internet access.

Secondly, i don't think making £10 from a £90 loan in a month is ethical as it comes from out of nothing

Astonishingly naive or just plain stubborn ignorance? How do you expect a business to make money?

but in general, if the issue of this thread is covered elsewhere i'd be grateful for a link.

Can't be bothered. If you have a look you will find dozens within the last year.

Other than that i apologise if i have posted on a topic that's been discussed to death elsewhere...

Apology accepted. Have a good evening.

CHR15

Tee-Es wrote: »

I don't think making £10 from a £90 loan in a month is ethical as it comes from out of nothing.

What would you consider an ethical charge for a comany lending you £90 for a Month.

Staff wages, phone lines, websites, premises etc etc all have to be paid to process that loan.

I can't see a problem and consider £9.99 an entirely reasonable charge.

How many banks would charge less than £9.99 for bouncing Direct Debits along with all the extra missed payment parefenalia

It seems from your posts you expect Zero interest loans.... I'm all for it but please tell us how you think it would be possible..... after all, interest comes from "nothing" doesn't it??

Tee-Es

CHR15 wrote: »

What would you consider an ethical charge for a comany lending you £90 for a Month.
[...]
I can't see a problem and consider £9.99 an entirely reasonable charge.

How many banks would charge less than £9.99 for bouncing Direct Debits along with all the extra missed payment parefenalia

It seems from your posts you expect Zero interest loans.... I'm all for it but please tell us how you think it would be possible..... after all, interest comes from "nothing" doesn't it??

I am not necessarily expecting zero interest rates. Just for comparison purposes, I went to the websites of a couple of high street banks, and they quote loan APRs between 7.7% and 10.9%.

Based on the above example, they seem (I didn't check whether their APR calculation includes fees) to charge less for the entire year than the company that I quoted above charges for a one month's loan (9.99 / 90.01 -> 11.1%).

Based on this, I'd say a charge of £2 for a month's loan (which still equates to an APR of 30% ( ((£2/£90.01)+1)^12 - I hope I got it right this time) is more than enough!

Conversely, where is the borderline for a fee to become unreasonable / unethical... whatever? Based on the £90 loan, is it £5? £15? £50? Whatever is accepted by 'the market'?

Thank you for entering the discussion in a constructive manner, btw. I also take the point that all responses seem to more or less disagree with my initial point (irresponsible lending).

CHR15

You're not taking Risk into account.

The mainstream lenders only lend to people who meet their (strict?) lending criteria. They only lend to people they believe are most likely to repay the loan.

Payday Loan companies lend to all the others. The majority of them (I guess) have poor credit history. They have a history of failure to repay.

If the PDL companies only made £2 profit on lending, and a reasonably high portion of those borrowers failed to repay, how long would that company continue to trade??

Personally I think those with the best credit history, should obtain the best rates (reward for being a good customer and low risk).

Those with a history of failing to honour the terms should get the worse rates.

Making just £2 profit for adminstering a loan and risking non payment is simply an unsustainable business model.

Even £10 surprises me, the company would need a LOT of good customers to make up for the ones who refuse to repay. Just reading this forum alone suggests there are FAR too many people who refuse to repay.

CLAPTON

Tee-Es wrote: »

I am not necessarily expecting zero interest rates. Just for comparison purposes, I went to the websites of a couple of high street banks, and they quote loan APRs between 7.7% and 10.9%.

Based on the above example, they seem (I didn't check whether their APR calculation includes fees) to charge less for the entire year than the company that I quoted above charges for a one month's loan (9.99 / 90.01 -> 11.1%).

Based on this, I'd say a charge of £2 for a month's loan (which still equates to an APR of 30% ( ((£2/£90.01)+1)^12 - I hope I got it right this time) is more than enough!

Conversely, where is the borderline for a fee to become unreasonable / unethical... whatever? Based on the £90 loan, is it £5? £15? £50? Whatever is accepted by 'the market'?

Thank you for entering the discussion in a constructive manner, btw. I also take the point that all responses seem to more or less disagree with my initial point (irresponsible lending).

I would suggest you will find NO loans from any high street lender for £100 at any APR.
Taking a typical random example of Nationwide 7.7% APR are for a minimum of 7,500.

Try working out a business plan and the costs of lending small sums of money for a 30 days; the admin costs with be similar to loans of 7,500 over 5 years.

If it's so easy why not consider starting you own lending organisation, say £5 per £100 over 30 days... easy money as you think £2 would be fair. The extra £3 would make you a millionaire in a year or so....and you would always have the ethical alternative of reducing your rates once you are established.