Should Payday loans be legal?

Monkeyballs

Ok,

Thought I'd just put this question out there and start the discussion...

I understand that Payday loans are useful to some people but there seems to me to be more people out there who get into difficuties due to payday loan companies than appreciate the service they offer.

Reading through existing threads the general tune is "I owe such and such lender £700", I owe "this payday loan company £500, should I default?" and so on...

So, should Payday loan companies be made illegal? I know the likely arguement is that removing this lending source would drive people to doorstep lenders and loan sharks etc... But at the same time a lot will be driven to alternative 'positive' alternatives like the CAB, Credit Unions, etc.

Or, I suppose another suggestion would be: As they are offering payday loans, should there be a cap on the amount they are allowed to lend? Before lending they should be sent copies of 3 months payslips and be able to offer a max of say 15% of the monthly average...

I am speaking as a user of Payday loan companies who has in the past had serious problems so I do have some experience of them...

What do you think?

bottleofred

Hi Monkeyballs,

There are 2 ways of looking at this really.

The first way is if they don't provide the service, as you've said, it may force people into going to loansharks, with probably worse consequences than phonecalls/letters in the event of non payment.

The 2nd is that these companies offer a service and unfortunately, when people are desperate, will make use of this service. I used payday loans for a long time (usually cashing cheques of £200-300 per month), but eventually managed to break free from this method of borrowing. Although they clearly advertise their APRs, when people need cash this doesn't matter (that's how I felt anyway). I think that allowing people to borrow only a % of their monthly income could be a suggestion, but payday loan companies probably won't agree with this, as it gives them less of an opportunity to make money at the expense of desperation!

climbintheladderouttadebt

I think they should be FAR better regulated. I don't think they should make money so easily available etc (have read of people claiming to still be working when taking out a loan or loans and details not being checked etc).
I think their APR should be reduced in the long-term (I know they're not designed at long-term borrowers but as you said Monkeyballs, so many people fall into a debt spiral with these companies). I believe their debt collection practises should be investigated too. My friend took out a loan and they just keep taking money from her account they claim she owes, yet wrote before they took the money to say she had paid! The bank aren't interested and she's so over her head she's going bankrupt now as she can't take anymore of trying to pay back these hounds when they won;t agree a payment schedule.

I'd love to see them out of business personally but cannot see how these companies could be made illegal?

Monkeyballs

Hi Red,

Interesting question though isn't it... I'm just surprised that the Government hasn't started looking into the world of Payday loans and started to make them change the way that they operate. I fully accept that there is probably an ongoing need for this type of service but it seems like a bit of a free for all?

I have a bad credit rating, if I walked into a bank (who are incredibly tightly regulated) I'd be refused a loan (ok, partly due to the small amount and short space of time involved) but it's ok to contact a payday loan company and take out a loan of upto 75% or more of my monthly income and be charged 1000's of % APR?

I really do think something has to be done to more closely manage what these comapnies can and cannot do as more and more people get into debt will likely turn to these companies and ultimately make their lives and situations worse...

bottleofred

Hi Monkeyballs,

I couldn't agree more with what you've said. They trade on the misery and desperation of people who need short term cash. The company I used have been around a long time and I think if I cashed a cheque for £100, I got £86. While this is expensive, I'm not sure it's as high an APR as some of them advertising currently with APRs of over 2000!! Better regulation is definately required, but while they comply with the law, they'll continue to feed on the misery of the poor, vulnerable and desperate for there own gain!

Monkeyballs

I've been there done that and to a degree I'm still there but I'm working something out with a Credit Union...

I accept the likelyhood is that they won't ever be made illegal but in many respect they are much the same as loansharks... Pay up or we'll send the heavies around...

Perhaps making them conform to a standard code of practice? Perhaps having a maximum number of extensions available before having the customer agree to a repayment plan on a MUCH lower interest rate?

A lot of the confusion I feel is that the way one operates can vary so wildly to another... Some are fairly easy to contact and make repayment arrangements with while others (Wonga seems a prime culprit although I have personally never used them) are nigh on impossible to reach and will happily make peoples lives hell so long as they get their money back with interest!

bottleofred

The credit unions are definately a good way to go, as they won't let you borrow unless you can afford to save at least £1 per week and you must also have been saving for a while prior to borrowing. The payday loan companies are capitalising on peoples desperation, but until there is a viable, cheaper alternative, they'll continue to make loads of money as their users cannot get cash elsewhere.

Monkeyballs

I just get upset by all the posts from people asking for advice on dealing with these companies...

Makes me SOOO angry.

Infact I've just emailed the Prime Minister, LOL. I'm sure he already knows the problem and has bigger fish to fry but at least I've voiced my opinion on the matter and have voiced it as high as I can go!

LOL. you never know...

immoral_angeluk

I don't think they are the problem, I just think there's a serous lack of education as to the possible consequences and implications of taking on any credit, and managing your own personal finances...

Monkeyballs

Hi Angel,

Thanks for your message. I agree with you when you say there is a serious lack of education but what is the easier option? Either tighter regulation (Ok, I accept making them illegal is probably a no go) or, trying to educate the thousands (or millions?) of people who use these lenders each year, month after month...

I'm not suggesting for one moment that it should be easier for people to either wash their hands of their debt or face up to their position.

But, I am suggesting that something has to be done re. the options available when they DO get into a tricky situation.

I accept that something also does need to be done to educate people better about credit, finances etc... but thats not the question here.

These lenders are aiding the wrack and ruin of peoples lives but nobody seems to be interested in doing anything about it?

molit

I find it frustrating as to how financially illiterate everyone, sorry, nearly everyone is. This is at all levels of society as well, I remember reading Rosie Millards column for ages, a supposedly successful intelligent person, but she was in massive debt of well over 50k if my memory serves me right. its more the acceptance of everyone being financially inept which is more concerning, teenagers relying on the bank of mum and dad, twentysomthigns betting into massive debt trying to buy houses and cars too soon, thirtysomethings trying to keep up with the Jones', fortysomthings worrying about pensions, and hoping that everything will sort itself out, fifetysomethings remortgaging to pay for pensions, pensioners, not having realised that not saving for a pension was the biggest mistake of their lives, and continuing.....

and breathe