MSE News: Stella Creasy: Action needed NOW on payday lenders

in Loans
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"The Labour MP demands greater policing of 'legal loan sharks' in the window before tougher regulation comes into force..."
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  • RafterRafter Forumite
    3.8K Posts
    Stella,

    Couldn't agree more with this campaign. The sky high cost of borrowing for pay day loans (and to be fair some authorised and unauthorised overdraft charges) is a burden on society and has zero social value as a business activity.

    My simple rules would be:

    1) to cap any lending activity so that the maximum you can pay back over a 12 month period with the same lender would be twice what you have borrowed with a maximum 'fee' included of <£12 for setting up the original credit agreement/ searches/ fraud checks and paperwork.

    2) Cap the total amount of unsecured credit that any individual can have at <3 months income at time of application - any lender who didn't adequately check affordability or who lent over this limit would have the amount over the limit written off.

    3) Give consumers the default option of a current account which does not go over limit with a maximum £1 charge per item that is rejected to cover any administration costs with an emergency buffer of £200 that can only be activated by contacting the bank or going online.

    I believe that the combination of these would dramatically curtail the worst industry excesses and the problems caused by easy credit and debt that are a burden on society as a whole.

    Good luck with your campaign.

    R.
    Smile :), it makes people wonder what you have been up to.
  • Not a problem with costs within a loan term.

    A payday loan is a short term emergency loan so quite frankly people shouldn't be allowed to have more than 1 or 2.

    The total cost should end at the end of the loan term bar reasonable costs necessary to recover the debt plus say statutory interest (8%).

    It is amazing how many people have a £100 loan that becomes multipled many times in a short period of time...

    Legalised loan sharks indeed are some of these companies!!!
    I have numerous qualifications in Business and Finance, Accountancy, Health and Safety and am now studying Law.

    Don't rely on anything I write as it may be wrong!!!
  • edited 2 January 2013 at 5:15PM
    callum9999callum9999 Forumite
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    Forumite
    edited 2 January 2013 at 5:15PM
    I'm always torn on this issue. What exactly are the people who genuinely need the loan, but because of the capped interest etc. can't now get it, meant to do? It seems slightly unfair to penalise them because of other people being irresponsible (you can't lend irresponsibly if someone isn't trying to borrow irresponsibly...).

    While this has reached the point where something really should be done, "protecting" the people who wreck their own finances always comes to the detriment of someone else, so you need to be careful how it's done. Saying that, the suggestions given in the first post seem pretty reasonable to me (except for the last point - it's both unfair, and quite possibly illegal, to force banks to give overdrafts to everyone).
  • Guess it will be good news for the illegal legbreakers.

    Are there really people out there that do not realise that Payday loans are very expensive if carried beyond the term?
  • callum9999 wrote: »
    I'm always torn on this issue. What exactly are the people who genuinely need the loan, but because of the capped interest etc. can't now get it, meant to do? It seems slightly unfair to penalise them because of other people being irresponsible (you can't lend irresponsibly if someone isn't trying to borrow irresponsibly...).

    While this has reached the point where something really should be done, "protecting" the people who wreck their own finances always comes to the detriment of someone else, so you need to be careful how it's done. Saying that, the suggestions given in the first post seem pretty reasonable to me (except for the last point - it's both unfair, and quite possibly illegal, to force banks to give overdrafts to everyone).

    I don't have a problem with the high APR, so long as it is kept to the loan term only...
    I have numerous qualifications in Business and Finance, Accountancy, Health and Safety and am now studying Law.

    Don't rely on anything I write as it may be wrong!!!
  • edited 2 January 2013 at 5:23PM
    UsetheFORCEUsetheFORCE Forumite
    688 Posts
    Part of the Furniture 500 Posts Combo Breaker
    edited 2 January 2013 at 5:23PM
    ILW wrote: »
    Guess it will be good news for the illegal legbreakers.

    Are there really people out there that do not realise that Payday loans are very expensive if carried beyond the term?

    Why even have a term then? You might as well have it as a revolving credit facility!
    I have numerous qualifications in Business and Finance, Accountancy, Health and Safety and am now studying Law.

    Don't rely on anything I write as it may be wrong!!!
  • Why even have a term then? You might as well have it as a revolving credit facility!
    So are you saying the interest rate should drop if the loan is not repaid as per the contract?

    That would make no sense at all.
  • edited 2 January 2013 at 5:46PM
    UsetheFORCEUsetheFORCE Forumite
    688 Posts
    Part of the Furniture 500 Posts Combo Breaker
    edited 2 January 2013 at 5:46PM
    ILW wrote: »
    So are you saying the interest rate should drop if the loan is not repaid as per the contract?

    That would make no sense at all.

    Of course it should, the contractual interest rate should apply to the loan term only. Anyway, I don't even consider it interest as such, more a service charge for providing a short term loan.

    You make a business decision to lend to someone, if it turns sour then tough!!! You shouldn't be allowed to attempt to extract ridiculous sums off people, only the principal. charge, reasonable costs to recover and a little interest.

    So when someone is lent a 3rd, 4th, 5th concurrent 'payday loan'.... I have no sympathy for the lender, clearly no proper checks, make a little lack of information as well.

    Reckless borrowing but then it wouldn't be if it wasn't reckless lending in the first place! These companies are either ignorant or they can easily conclude that the borrower is in the ****, I have little sympathy for them!
    I have numerous qualifications in Business and Finance, Accountancy, Health and Safety and am now studying Law.

    Don't rely on anything I write as it may be wrong!!!
  • Of course it should, the contractual interest rate should apply to the loan term only. Anyway, I don't even consider it interest as such, more a service charge for providing a short term loan.

    You make a business decision to lend to someone, if it turns sour then tough!!! You shouldn't be allowed to attempt to extract ridiculous sums off people
    So if you agree to borrow £100 repaying £125 a couple of weeks later, you may as well not bother repaying anything until you get another job, win the lottery or whatever safe in the knowledge your balance will remain static?
  • Of course it should, the contractual interest rate should apply to the loan term only. Anyway, I don't even consider it interest as such, more a service charge for providing a short term loan.

    You make a business decision to lend to someone, if it turns sour then tough!!! You shouldn't be allowed to attempt to extract ridiculous sums off people, only the principal. charge, reasonable costs to recover and a little interest.

    So when someone is lent a 3rd, 4th, 5th concurrent 'payday loan'.... I have no sympathy for the lender, clearly no proper checks, make a little lack of information as well.

    Reckless borrowing but then it wouldn't be if it wasn't reckless lending in the first place! These companies are either ignorant or they can easily conclude that the borrower is in the ****, I have little sympathy for them!

    That really makes no sense.
    In effect, the longer someone strings out repaying, the cheaper the money would get.
    Bear in mind that people who take out payday loans are the ones who cannot get credit from mainstream lenders.
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