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MSE News: MP to step-up payday loan cost cap moves

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MSE News: MP to step-up payday loan cost cap moves

edited 30 November -1 at 1:00AM in Debt-Free Wannabe
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MSE_GuyMSE_Guy MSE Staff
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edited 30 November -1 at 1:00AM in Debt-Free Wannabe
This is the discussion thread for the following MSE News Story:

"Labour MP Stella Creasy says many firms are exploitative given expensive loans are often aimed at society's poorest ..."
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  • jamesdjamesd Forumite
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    Particularly interesting is this combination of opinion and fact: "Labour MP Stella Creasy says the practice of many firms is exploitative given expensive loans are often aimed at some of society's poorest. .... Figures show one in ten payday loan borrowers earns £11,000 or less". So most payday loans aren't used by society's poorest after all, according to the statistics.

    Anyone who has trouble with a payday loan could usefully look at Lenders Compared. That is the site that doorstep lenders are required to use after an investigation by the Office of Fair Trading. It'll usually provide cheaper credit than a payday loan, a way out of the trap of very high ongoing charges, falling to just high - a couple of hundred percent instead of a couple of thousand.

    Hopefully legislation to convert payday loans to ongoing loans at lower cost may result from the efforts. Or those suffering could try to do it themselves using Lenders Compared or cheaper options.
  • corbyboycorbyboy Forumite
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    I have no doubt that these companies take advantage of the poor (and ignorant) to a certain extent, but surely it costs a certain fixed amount to set up a loan, no matter how much the amount is.

    They have to employ people to fill in the paperwork and do the checks. If you are borrowing £100 how are they supposed to pay their staff if they only charge a couple of £ in interest?

    And I agree with jamesd about the stats:
    Figures show one in ten payday loan borrowers earns £11,000 or less.
    So in other words 90% of borrowers earn more than £11,000.
  • edited 13 June 2011 at 10:52PM
    ConsumeristConsumerist Forumite
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    edited 13 June 2011 at 10:52PM
    Sounds to me like another case of MPs trying to meddle in matters which they just do not fully understand. No wonder Stella Creasy appears to be being ignored.
    >:)Warning: In the kingdom of the blind, the one-eyed man is king.
  • jamesdjamesd Forumite
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    Yes, but that doesn't mean that there's no problem. We could as a society benefit from something like a requirement to disclose locally available registered competitors from Lenders Compared whenever someone rolls over a payday loan, so people are more likely to discover the cheaper options.
  • JimmyTheWigJimmyTheWig Forumite
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    Agree with corbyboy that these companies are going to have costs and it is meaningless to look at an APR for something like this.
    But there should be some sort of cap on charges. Maybe a limit on the percentage of the initial loan as admin fees (e.g. 10%) then a limit on the interest rate (e.g. 250%).

    With these example maximum rates, borrowing £207 (why??) for 20 days would still result in a similar amount of interest paid as in the article (a little more, in fact - £49.06, which I make 4749% APR) but if the loan rolled over for a further 20 days the total cost to repay would be £77.41, which I make 1716% APR. I think this is more reasonable (whilst still funding their admin costs) than the interest that they charge currently which would be £106.


    Ed Davey is my MP. Anyone know the best way to contact him?
    Any concrete suggestions that I could ask him to do?
  • ashleyprideashleypride Forumite
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    DoshDaddy wrote: »
    This is why we set up spam.com so that anyone can quickly and easily compare the actual cost of borrowing this way.

    No, you set it up to cream money from referrals. Go away with your spam.
  • edited 14 June 2011 at 11:08PM
    jamesdjamesd Forumite
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    edited 14 June 2011 at 11:08PM
    Xxxxx wrote: »
    We believe the best way to ensure customers get a fair deal is to direct them to the lenders who will provide them with the most affordable payday loan for their circumstances.
    The best way for consumers is to visit Lenders Compared and go to a cheaper doorstep lender instead. Though I expect that some payday loan vendors will also end up there offering longer term credit than their usual products.

    A consumer should generally consider payday lenders only if they can't get credit from those more mainstream lenders, or others that are fully in the mainstream. So the most important thing that a consumer visiting your site should do is go to another site first.

    As an exercise I looked at the prices you were giving for a £300 loan for 28 days. The lowest total cost for credit was £75. Then I looked at Lenders Compared and found a local lender who offered a loan of £300 for a total cost of credit of £99 and a repayment term of 19 weeks. That protects them against having to take out another loan and by repaying in less than 19 weeks or overpaying they can save much of that credit cost, getting a cheaper deal as well. And that's a much better deal for the consumer than the best of the loans on offer via your site.

    Since £300 is quite a lot for some borrowers, I checked £100 over 28 days next. Best deal on your site was £25 total cost of credit. Best via Lenders Compared was £33 over 19 weeks, again a cost that would be lower than yours if the consumer repaid it all after 28 days. 28 days too long? I checked the lowest total cost of credit for 7 days. £9 on your site. Again the 19 week deal repaid after 7 days would be cheaper.

    Comparison sites like your can be useful but if you want a high ethical standard you should be directing people to the cheaper loan options first.
  • malchapmalchap Forumite
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    any MP with responsibility of dealing with payday loans knows exactly that he is dealing with loan sharks by another legalised name. there is no excuse for delayed action. just find all the messages from those in trouble, and read them.

    They are all of a range of desperate dreamers who are lured into ridding themselves of what little credit they have.

    Immediate action is necessary if anyone really cares
  • FireWyrmFireWyrm Forumite
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    malchap wrote: »
    any MP with responsibility of dealing with payday loans knows exactly that he is dealing with loan sharks by another legalised name. there is no excuse for delayed action. just find all the messages from those in trouble, and read them.

    They are all of a range of desperate dreamers who are lured into ridding themselves of what little credit they have.

    Immediate action is necessary if anyone really cares

    That's a bit harsh dont you think? At the end of the day, this is a capitalist economy. There have been loan sharks since the dawn of time and there will be as long as there is money. Whilst I would rather starve than approach a PDL company, it doesnt mean that they should be put out of business. No one is forced to go to them and despite the endless harrassement and phonecalls, they still arn't allowed to kneecap you. It is relatively easy with the correct tools to reign them in if you get into trouble and the best advice as always, is dont get into the mess in the first place. The bottom line is that most people (me included) are living way beyond their means and until we as a society grow up and recognise this, there will always be scope for these bottom feeders. If we all learned to use our money properly, the PDL company would simple go the way of the dinosaur, no legislation required. It's the same with the goldsharks. Have you noticed that there are fewer adverts on TV? They're dying out because people dont use them anymore for whatever reason. PDL's are a pain and some people get themselves into awful trouble, but the sad truth of the situation is that no-one forces anyone to sign these contracts and as responsible adults, the people who do evidently knew what they were letting themselves in for. It's like a bunch of young adults claiming they didnt know that reproduction was the likely outcome of unprotected sex! Come on! We all know that 2569% is userous and if you do this, you have to be either absolutely desperate or insane. More to the point, allot of these PDL's go on servicing unnecessary expenses such as mobile phones. I would understand your anger if these people were taking PDL's because they were truly hungry, but at the end of the day, the majority is to service discretionary spending which could easily be dealt with another way - it's just greed that clouds one's judgement if one is honest about it.
    Debt Free! Long road, but we did it
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  • ConsumeristConsumerist Forumite
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    Pay-day loans do serve a purpose if used for the purpose for which they are designed. If, for example, you insist on using a screwdriver to cut a cake then you should expect a messy result.

    I don't think pay-day loans are any worse than, say, the £1, £2 or £5 daily overdraft charges made by mainstream banks; curtailing these charges would be more productive for the consumer than banning pay-day loans, in my opinion.
    >:)Warning: In the kingdom of the blind, the one-eyed man is king.
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