Should Payday loans be legal?

Monkeyballs

Thinking about it... I'm surprised that banks have not cottoned on to the idea of payday loans...

Easy money for them and as they are so well established, they already have the infrastructure in place to properly manage the process.

Although, how would this impact on overdrafts?

* This is a random thought that has popped into my head *

Monkeyballs

Now all we have to do is convince Martin that he can be the next Jamie Oliver and start collecting signatures to introduce healthy finances into schools and the work place...

I work for an insurance company and we have one of our company financial advisors make visits to our office on a regular basis, at the same time we have regular sessions during lunch hours where we can sit through either a lecture or hold an open discussion with someone from a particular technical field...

These could easily be rolled into one.

Guy's I think were on to something here... And the Healthcare/NHS approach is a good angle to use! Anything which saves the government money is a good thing isn't it?

barbiedoll

Did you see the poll here...?

http://www.moneysavingexpert.com/poll/02-03-2010/should-financial-education-be-taught-in-schools

Monkeyballs

Hi Barbie,

I hadn't, no.

Thanks, that seems pretty conclusive that the people want to be educated!

Do these polls ever get taen any further?

DarkConvict

Monkeyballs wrote: »

Thinking about it... I'm surprised that banks have not cottoned on to the idea of payday loans...

Easy money for them and as they are so well established, they already have the infrastructure in place to properly manage the process.

Although, how would this impact on overdrafts?

* This is a random thought that has popped into my head *

The banks reputation is already tarnished, I somehow think they may try to avoid it.

Either that, or its the google owing youtube scenario.

Big banks have big pockets, so if they did have to regulate they would be footing the bill more than the current payday loan firms.

As to capping interest rates, they are certainly part of the issue, but short term lending is always high, tag in a poor/risky credit rating then its sure to rise. Payday loans work because even if they can't get paid it all back, even a low settlement offer would probably cover the initial amount + profit.

Regulation is the only short term solution if you were to have one, but then the government doesn't cap or force interest rates as they are business decision. So I'm unsure if they could push it through.

ampafc

I don't think payday loans should be banned, but like others on here have suggested, I think they should be better regulated.

I am in a situation where I am having to pay back 4 payday loans. I took them out thinking that I could get the £400 (Or whatever amount that day) go to the bookies, turn that into a lot more, and essentialy get a 'free' loan. I was suffering from a gambling problem at the time, (which i have since taken steps to sort out - not gambled for a couple of months now)

I was already in debt due to gambling, so wanted to use this as my stake money, to win more back, and pay a lot of bills. This, of course, never happened, and i just ended up losing the money ajnd in more debt. I would be very surprised if a lot of addicted gamblers did not do exactly the same thing as me. My credit rating was bad - but seeing as a lot of these comapnies do not credit check you - I was able to get the loans.

So here's what i think should be done:

1.Charge a maximum monthly interest of 15%.
2. All applicants should have to go through a credit check.
3. Proof should be given of what the money will be spent on (not sure how this would work mind you)
4. Allow the money to be paid back over 3/4 payday's, instead of just the next one. Get rid of 'rollovers' - just give people more time to pay the money back.

Monkeyballs

Hah, yeah I don't ACTUALLY think that banks would be willing to do payday loans... Bit too risky and would probably wind up damaging their image more than it does to help.

I just think that something needs to be done to help to protect people falling foul of the kind of interest rates, charges and tactics employed by these lenders.

I see that there is a need for education and agree that debt 'should' be a burden but if nothing is ever done about it then the topic will rumble on but just be accepted as being the kind of debt that only idiots get into!

I should point out at this stage that I am one such idiot...

DarkConvict

ampafc wrote: »

1.Charge a maximum monthly interest of 15%.
2. All applicants should have to go through a credit check.
3. Proof should be given of what the money will be spent on (not sure how this would work mind you)
4. Allow the money to be paid back over 3/4 payday's, instead of just the next one. Get rid of 'rollovers' - just give people more time to pay the money back.

I do think more regulation is indeed needed.

1) Shockingly still 435.03% APR http://www.stoozing.com/mon2yr.htm

2) This takes time, and ID, etc. But I would agree to it

3) For the small amounts borrowed its pointless, it could be spent on so many different things. And if anything was disallowed they would just lie anyway

4) More important. What they need to do is ask for repayment within 30 days, but do allow a roll over without the shed load of additional charges and higher interest. There is still a problem with this though. The if you can't afford £100 now why would you afford £110 next month. Even if repayments were £30 a month, that is £30 down out of the budget, so if they are still spending they would need a new loan of £130 ontop of the original £100. This is the spiral that happens.

The tough luck, your out of credit. Work out another way would work for many people without them turning to the loan sharks. As others have said, without them they would have got by somehow and been better of for it. Payday loans make them profit, so its simply taking money out of your pocket no matter how you look at it.

Monkeyballs

Hi Ampafc,

Thanks for your contribution.

Don't be offended when I say this but you are one of the types of vulnerable people who these companies rely on. Tighter regulations would/could have seen you unable to get 4 payday loans at the same time in the first place!

I like your suggestions but do feel that they would limit the lender too much...

I have no problem with a lender charging £20 for lending you £100, I have a problem with a lender charging this amount to someone they have lent £800 to when they only earn £700... Someone on £700 should at the most be only able to borrow say £105 (15%).

Credit checks are a good idea, but the people who use these services often have a poor credit rating so would likely fail anyway...

Advice of intention... I like that one but as you mention, how do you prove it? It'd be too easy to lie...

I agree with your last point, the option to repay over a period of time should be available but not a standard as it would then stop being a payday loan and give the lender to increase the money they make from you.

* Congrats on the gambling by the way :-)

Hannah_10

barbiedoll wrote: »

I'm astounded by what I have learned on this board in 5 months, and I'm no genius, I just knew that somewhere I'd gone wrong and I needed to put things right. And I found out about this board in the "News of the World"

I'm really not stalking you Barbie I promise but so far everything you're saying is so relevant!

So you're not a genius and you read the red-tops... That means you're normal then. And it's normal people, like you, who don't know how to manage money because when have they ever had the opportunity to learn! (Exclaimation mark, you notice, not a question mark as it's a rhetorical question. We all know the answer is never).

It's easy to say that people get into trouble because they're stupid, yeah yeah heard it all before. I actually am a genius if you believe the best IQ scores I get (if you take the averages I'm not) and I am in financial trouble too. I see SOA's with salaries of over £35k on the DFW board regularly, you need to be fairly switched on to earn that kind of money... Stupidity just doesn't stand up as an explaination for debt problems. Something more complex is going on here...

The finance industry is run by financial experts. Well obviously! That's a bit like saying my local vetinary surgery is run by vets! Then there's the public, whose knowledge and education is aproximately NIL in these matters. They have also recieved zero education in vetinary medicine. If there were to be a conversation about mange or distemper would you not expect a vet to run rings round an average member of the populace? And yet somehow the popular answer when the financial industry run rings around normal people is that these people are stupid.

There is a fortune to be made by the financial expert who comes up with a new way to fleece the masses. I live near Rock, who here has ever heard of Rock? Probably not many, it's not the kind of place normal people know much about. It's the kind of place where only the incredibly rich have (second or third) homes and go sailing. Any idea how many fifty thousand pound cars and two million pound "cottages" in Rock are owned by payday loans company exec's? The answer is- LOADS. I hate Rock, it's a horrible place. By rights I should love it, it's beautiful and as a child we had happy school camps there, but I don't. To know that as you sit in the pub sipping your drink, watching the sun set you are surrounded by scum who would have other human beings starve to put another gold bauble on the yacht is an unpleasant realisation indeed.

Twelve miles from Rock there is the St Marys Rd council estate in Bodmin, where baliffs/ debt collectors are so frequent as to be on first name terms with the staff at the Spar, unemployment is astronimical and social problems are rife. Those are the people paying for the yachts at Rock.

The payday loans companies are all too frequently exploiting people who do not have (or do not know they have) recourse to advice. Who do not (or do feel) they have any other choice and who can not afford it (although they are often tricked into thinking they can). Not because those people are stupid, but because those people have never had an opportunity to be informed. Of course there will always be stupid people, who will do stupid things, regardless of what you try to teach them, but I find them to be in the smallest of minorities (even in Bodmin). It goes against human nature to deliberatly do yourself a dis-service.

Nearly everyone who, like Barbie and I, gets into a mess, does so because they weren't equipped not to. You watch them soak up knowledge and learns to help themself when they realise thier mistake.

All the while, the yachts get bigger. Vile isn't it.

That's why we need education and regulation.