'Don’t tell MPs I’m against payday loan regulation!' blog discussion

Former_MSE_Penelope

This is the discussion to link on the back of Martin's blog. Please read the blog first, as this discussion follows it.

Read Martin's "Don't tell MPs I'm against payday loan regulation!" Blog.

Please click 'post reply' to discuss below.

Gorgeous_George

Many consumers simply do not understand APR.

Loans should have a fixed admin cost and an interest rate shown separately - not unlike mortgage deals that have product fees. Borrow £10,000 and this might be an admin fee of £150 with interest at 8%. Borrow £500 and it might be an admin fee of £150 with interest also at 8%. The interest rates and admin fees are the same but when rolled up into the APR we have 10.8% and 60.5% for the large and small loans respectively. Is either loan unreasonable? The £500 loan could be more expensive to collect and the £150 admin may not be sufficient.

A traffic light system might be better with sensible rates given a green light and a sensible costs given a green £ sign (sensible could be set by OFT). Higher rates and costs would be given a red light and a red £ sign (or multiple lights/signs).

GG

(I used Excel's PMT and Rate functions in my calculations)

jamesd

Anyone using a payday or doorstep lender should check Lenders Compared, the independent site set up as a result of the Office of Fair Trading's investigation into the doorstep lending industry. Rates there will often be cheaper than payday loans over longer times.

Requiring all payday loan lenders to reference that site and the larger ones to supply data to it may also be useful, since it would increase competition in the industry.

Not everyone has or uses online access, so a requirement to provide a leaflet identifying registered Lenders Compared lenders in the local area may help to further increase competition in local markets.

A lack of requirement for mainstream lenders to use quotation searches continues to severely hamper consumer's ability to shop around for the best credit deals, hurting those with impaired credit particularly hard. Requiring large lenders to use quotation searches would help that group substantially by making it easy to check whether they have to use sub-prime lending or whether there are mainstream lenders who will lend to them.

None of these measures requires a cap, they just help competition to work more effectively. Caps would still be useful.

JimmyTheWig

Martin, you might want to check the caption to the picture - "Tighter regulations would be bad".
??

dannynolan

I remember seeing a programme on a glasgow loan shark.

One of his books (and he had a few) took £90,000 in repayments in one year; of course cash in hand and tax-free. At any one time he had no more than £3,500 out on loan.

Rather gives the lie to the argument that 'at least they provide a service'.

They of course don't want their loans to be repaid, they just want their clients to pay them £x a month for the rest of that client's life.

Heroin dealers work off a similar model for their 'service'.