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

Edwardia

OH has several times gone behind my back and arranged payday loans rather than admit that he'd been overspending and gone over his arranged overdraft limit. There's no mis-selling on the part of The Money Shop, he was just being stupid. If he wasn't perpetually overspending on ?????? he wouldn't have overdraft and if he'd listened to advice from me, my mother, his mother, my father and his sister he would have sizeable savings not a loan.

People panic and take what seems like the easiest option and get themselves in a bigger mess. It happens. I think the interest rates charged by payday loan companies should be regulated but saying that these people were mis-sold is nonsense. They sign an agreement which explains it all.

kondormid

8.7 million species of life on this planet and one of them needs payday loans.

Ever get the feeling we might not really need them?

jamesd

SnowMan wrote: »

Yes I did read that, I think this is the report you are referring to.

Thanks, I hadn't read that one. I wrongly attributed the earlier Competition Commission investigation to the OFT. I was really referring to the CC report that this report mentioned starting at 3.55.

SnowMan wrote: »

I thought it was a bit superficial to be honest.

The CC and OFT reports can seem that way because they tend to focus on competition and markets and see if improved competition can improve things. Often end up finding that competition improvements would help. I hope that MSE's work on an article about payday borrowing (and hopefully other high APR borrowing as part of the package of alternatives) can help with this.

SnowMan wrote: »

What I would have liked to have seen in that report was some sort of analysis of how many people who had resorted to high interest credit then managed to find their way out of debt and for how many debt spiralled into bigger problems.

That would be interesting. As usual it's probably a fairly small minority but it's interesting to see what might be done to reduce the chance of those people having trouble and make it easier to escape it.

pepper33

Does this apply to credit cards which I obtained, when if the companies had looked up my cra file, which they do now, to see what I am doing, now that I can't pay them. If they had looked the cra up when I was applying in the late 90's, they would have seen that I was well overcommitted, and was robbing Peter to pay Paul.. I have been in a dmp since 2003, and will be there unless these bankers give up on me. I am so stressed out I am off work sick....

davidgmmafan

I recall reading something a few years ago about a judge who threw a case out because the loan had been paid off many times over, the interest was such that it would never be repaid. I think it was more of a common law thing to be honest.

Some of these pay day loans come very close to that in my view. The fact that they exist at all has something to do with the fact bank charges are so unpredictable. If someone has experience the snowball and survived they won't want to risk that again, even to the point of taking irrational deals like the ones we are discussing here so I'd say some action on that is part of the solution.

I think there is a lot of room for credit unions too, although I think there are more now its not something I think people talk about in everyday life.

make-do=and-mend_2

cod3 wrote: »

Are the pay day loan companies a recent phenomenon?

A few years back when I was paid monthly and low paid, I often ran out of money and would just have to go without. No food or fuel, but survived obviously. Slim pickin's for a week or so as I don't think PDL companies were even an option.

Going even further back to my bedsit days when I worked in a bakery/cafe, many a time I went to bed early to keep warm with no money for the meter until payday. I'd get up early, wash in cold water and get down to work early for a warm in front of the ovens and a free breakfast of a fresh bread roll and jam! I often relied on tips from customers to keep me going until I got my weeky wages. Eventually got a second job in a pub in the evenings to make ends meet and that's where I met my husband. He swears he'll never chat up a barmaid again! :rotfl:

SnowMan

Interesting item on the BBC money box programme yesterday here (item starts at 14 minutes 42 seconds).

That gives an example of a lady who took out a payday loan when she moved out of a shared flat and incurred some costs which meant she took out a payday loan. Ended up owing money to 7 payday lenders.

It appears her £100 original MiniCredit loan spiralled to £750 with interest and charges.

The item was mainly about MiniCredit and how they had threatened to contact her employer (which is obviously appalling and against the OFT debt collection guidance not to cause people public embarrassment), and how they had also refused to freeze interest and charges when her other creditors had.

However it is a good practical example of how the use of a small payday loan can allow someone's financial affairs to spiral out of control in no time through rollover of loans etc.

The solution to the wider problem, if that case is typical, is not just for the OFT to take enforcement action against firms like MiniCredit for breach of the OFT rules, but to look at how someone like that lady has ended up in the position she has by the use of payday loans.

Do payday loans provide a useful service to people who can't access mainstream credit or do they (as I believe) do considerably more harm than good?

Let's hope the new OFT investigation does some good but I am not holding out much hope.

mjcook7783

dunstonh wrote: »

Surely these would be misbought rather than mis-sold?



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.

I disagree somewhat to your opinion.
The reason the affordability check was highlighted was because of the extortionately excessive interest rate that payday loans charge. Insurance on vehicles is considerably less. Having an affordability check made mandatory for payday loan companies does not necessarily mean it would have to be mandatory for every company that sells insurance, finance or the like (such as the car insurance example you highlighted)
Again, the reason for the affordability check would be purely because of the extortionately high interest that is charged with payday loans and the comparatively short amount of time one has to pay it back (unlike car insurance).
Also, it is this high interest that forces many to extend the loan because by the time they have the money to fully repay a payday loan, they then need to re-borrow for a basic necessity such as food!!!
In case you're wondering, I have made use of payday loans a number of times and successfully paid most back early, only a few I have repaid on the deadline date. So I am not some disgruntled client that got his hand slapped and therefore having a rant. However, the extortionate interest rate that is sold to people is immoral and definitely needs to be addressed with some form of affordability check.

Wywth

mjcook7783 wrote: »

I disagree somewhat to your opinion...

Maybe you do, but this was from almost a year ago! :eek:

I'm not sure why you have dug up this old thread, but you are going to be very busy if you want to try and comment on everything you disagree with that was ever posted on the internet.

mjcook7783

Wywth wrote: »

Maybe you do, but this was from almost a year ago! :eek:

I'm not sure why you have dug up this old thread, but you are going to be very busy if you want to try and comment on everything you disagree with that was ever posted on the internet.

Thanks for letting me know how old this post is! I simply read it today and thought it was new as I simply clicked through.
But just as quick point, and hopefully no offence given, but I don't comment on "everything I disagree with that was ever posted on the internet". If you take a second look you will see I was disagreeing with a comment made by the person on this forum. It might be helpful for you to keep things in context in future.