MSE News: Could payday loans be the next mis-selling scandal?

Former_MSE_Guy

This is the discussion thread for the following MSE News Story:

"PPI mis-selling is all over the news, but one prominent consumer lawyer thinks payday and secured loans could be next ..."

Read the full story:
Could payday loans be the next mis-selling scandal?

dtaylor84

Could we perhaps have a mis-buying scandal instead?

dunstonh

Surely these would be misbought rather than mis-sold?

What could Judy argue?

There was no proper affordability check as the online payday lending took place instantly.
No fair assessment was given of the suitability of the loan and the consequences of not settling within the contractual term.
Instantly selling a very high APR payday loan, without a cooling-off period, took advantage of a vulnerable consumer.

Car insurance has no affordability check on monthly payments as most insurers have a floor limit of around £2000 before they run checks. So, a payday loan of a few hundred pounds is hardly a big deal. Plus, if you introduce affordability checks for that size of "loan" then you introduce significant costs which could end the availability of the loans (which may not be a bad thing but with loan sharks or bank charges on overdrafts being the alternative, then maybe it is). However, if you think that payday loans not having proper affordability checks is wrong then you have to apply that to car insurance as well.

As for assessment with regards to suitability, that is not their job. They are a supplier. Not an adviser. yes they should give clear risk warnings but you have to allow people to make choices on what they buy.

talana

2sides2everystory wrote: »

Any business launched explicitly to exploit thousands of years old frowned upon concepts of usury (charging interest on loans) deserves no sympathy on this forum.

Would that be basically every single financial institution then (bar the Islamic ones)?
Nice balanced view, well done.

grumbler

The Smiths are sold a second secured loan by a finance company. The interest was 11% over 10 years, and Mr Smith was 63 and Mrs Smith 65 at the time.
Two years on, they have retired, their income has dropped and they can't pay the loan. Now, Mr Smith is 67 and Mrs Smith is 69 and they have only been able to afford part of the payments. Repossession is looming.
Were the Smiths mis-sold? They might argue:

• Any creditor selling a loan should exercise reasonable care. They should assess whether a customer can afford to keep their payments up throughout the lifetime of the loan.
• As retirement was imminent, the company should have acknowledged the Smiths would struggle to pay the loan back once their income dropped. It should have advised them the product was unsuitable, and likely to result in repossession.

If a company can access that a customer can afford to keep payments throughout the lifetime, there is no need in a security for a loan.
All companies warn now about the possibility of repossession. How likely it is depends on so many factors, that only customers themselves can estimate this.

~Brock~

Get back in your box. Bloody ambulance chasers, leeching off society and increasing costs for everyone.

michaels

Now let's take a second example. Judy has a full-time job but can't access affordable credit.
She takes out a payday loan for car repairs. She does this online and it's approved in 15 minutes.

Now lets take a third example. Due to a smart-a*s lawyer, payday loans are no longer available as they can not be enforced. When Judy's car breaks down again she can either quit her job and go in to a downward spiral of benefits dependency and depression or she can go to a loan shark and end up fearing a lot more than a poor credit rating.

Meanwhile the lawyer who has collected 33% 'commission' on mis-selling payouts (that customers could have done themselves and got 100% of their money back) is enjoying driving his new BMW and holidaying in the Caribbean.

VfM4meplse

I have no time for these companies - but what's the viable alternative for people who really can't make their pay stretch for the final few days of the month? I don't think the concept of micro-finance would wrok in this country, not least because of the sense of entitlement people have to something for nothing. Hence why loan sharks are so successful.

I don't know what the answer is.

balmk

At what point are individuals going to take responsibility for their actions? This is taking the nanny state to the extreme.

So Judy was short of money the month after borrowing from a payday lender. Perhaps she should have been managing her money better. The implications of rolling over PDLs are made clear and readily availible, yet still she does it.

At this rate no-one will be able to get a mortgage, credit card, or car finance as lenders will be too concerned about getting penalised for not requiring a full background check and crystal ball future health analysis of potential borrowers.

Systems are in place for lenders including credit scoring to use past performance as a risk-measure, and to assess suitablility for products.

Mike_Dailly

Now lets take a third example. Due to a smart-a*s lawyer, payday loans are no longer available as they can not be enforced. When Judy's car breaks down again she can either quit her job and go in to a downward spiral of benefits dependency and depression or she can go to a loan shark and end up fearing a lot more than a poor credit rating.

Meanwhile the lawyer who has collected 33% 'commission' on mis-selling payouts (that customers could have done themselves and got 100% of their money back) is enjoying driving his new BMW and holidaying in the Caribbean.

It might be helpful to point out that I work as an employee of a community law centre that's a registered charity. We provide our legal services to consumers free at the point of delivery. We advocate self-help and work to empower people. We don't recommend hiring a lawyer in mis-selling cases or worse still CMCs. There's no need.

As regards other posts suggesting reclaiming mis-sold products will put costs up for everyone else it's important to recognise that what people are asking for is to be put back to their original position; where they have been treated unfairly, it's their money that they would like back please, no-one elses.

SnowMan

VfM4meplse wrote: »

I have no time for these companies - but what's the viable alternative for people who really can't make their pay stretch for the final few days of the month?

Credit unions (and possibly the Social Fund).

And for those turned down by credit unions debt counselling through one of the charities providing free debt advice.