Has the FCA got the payday loan cap right? Have your say!

michael1983l

Clive_Woody wrote: »

Assume this means that a lot less people will be offered payday loans as the silly APR compensated for the large number who default or never repay so that financial model goes out of the window.

Expect stricter credit checks for this type of loan and more people with nowhere to turn when they need money and all mainstream lenders have turned them down.

No doubt the regulator will hail this as a great victory but I would guess that PD lenders cannot afford to lend as widely with these restrictions in place. Can the regulators suggest where people can turn when PD lenders say not interested? Good day for loan sharks of the unregulated kind I think.

This old tale of turning people to loan sharks is a load of old tosh. I have not been able to obtain credit or lend off family for a couple of years now and yes I have had emergencies and so on and so forth. Instead of getting debt to get me out of the situation I have learned to be much more resourceful and have got out of situations without the requirement to borrow extra cash.

People can and will manage without credit, and lets be honest if a Payday Lender is likely to turn them down it means they can't afford the credit in the first place anyway.

PeacefulWaters

Could be interesting for banks charging fixed daily fees for a small overdraft.

My only concern with a cap is that some firms may increase charges to fall in line with it.

mjm3346

The only people it will slash costs for are those who probably could have got a better rate anyway if they had tried, the rest will have to manage some other way at possibly a far higher cost in the long run.

michael1983l

mjm3346 wrote: »

The only people it will slash costs for are those who probably could have got a better rate anyway if they had tried, the rest will have to manage some other way at possibly a far higher cost in the long run.

Freecycle, food banks, walking, car boots, local seeling groups on facebook.

There are far more ways to find needed resources than turning to payday loans. I have had a lot of trouble with credit, and I will do the previous mentioned before I ever go turning to payday lenders ever again.

dresdendave

michael1983l wrote: »

Freecycle, food banks, walking, car boots, local seeling groups on facebook.

There are far more ways to find needed resources than turning to payday loans. I have had a lot of trouble with credit, and I will do the previous mentioned before I ever go turning to payday lenders ever again.

Well done, your approach to dealing with money problems is the correct one, finding an alternative solution rather than just borrowing more.


Ideally when someone can't even get a PDL, it should become a light bulb moment, but I fear there are a few (perhaps many?) who will end up resorting to even more dubious lenders.

jamesd

No, you have not set the cap correctly. Rather, you have failed to sufficiently address the most in need sector of the marketplace who are also those who can most obtain a social benefit from the availability of short term lending.

The problem is the low cap for short term loans of low amounts. Doing even half adequate affordability checks and marketing for £24 on a £100 loan for 30 days is not something that I expect to be worthwhile. That's a problem because amounts at the low end of the range, perhaps up to £200, are likely to be those that are used to handle urgent needs by low income people who either do not qualify for or who cannot get grants or lower cost loans. The same cap percentage on a £500 loan doesn't seem problematic.

For this reason I urge you to consider a higher cap on the lower amount and shorter term range and use a total cost cap to protect in cases where the loan term may be extended.

If you have not already done so, you may also wish to mandate mentioning LendersCompared as an alternative possible borrowing source to anyone who asks for a repeat loan. Like payday lending the doorstep lending sector has the potential to deliver useful social benefits to the poorest but at lower cost than payday lending with the higher short term lending overheads incurred by the payday sector. There is also possible social value in mandating a referral to that site with all decline decisions, whether cap-related or not.

The costs to the prospective for declining to lend due to a cost cap can be substantial and far greater than the cap. That may be overdraft and returned cheque costs or not being able to get to work for a while or not being able to replace a necessary appliance and incurring higher costs as a result.

I agree with you that there are some uses like holidays or excessively large gifts or excessively high wedding costs that are not of social benefit. It may be worth permitting a range of named purposes at the otherwise capped end as a way to try to maximise the social benefit while reducing the social cost.

For those reasons I do not believe that you have made an appropriate balance that will maximise the social benefit while also keeping the social costs under control.

Clive_Woody

michael1983l wrote: »

This old tale of turning people to loan sharks is a load of old tosh. I have not been able to obtain credit or lend off family for a couple of years now and yes I have had emergencies and so on and so forth. Instead of getting debt to get me out of the situation I have learned to be much more resourceful and have got out of situations without the requirement to borrow extra cash.

People can and will manage without credit, and lets be honest if a Payday Lender is likely to turn them down it means they can't afford the credit in the first place anyway.

I think assuming that everyone else will follow your approach is a little deluded. If the masses acted so responsibly then there would most likely be no PD lenders.

I applaud your restrain and no doubt some will learn to use a similar approach but the loan shark suggestion is far from 'a load of old tosh', and may become a sad reality for many.

Apples2

Clive_Woody wrote: »

I applaud your restrain and no doubt some will learn to use a similar approach but the loan shark suggestion is far from 'a load of old tosh', and may become a sad reality for many.

You do realise michael was so buried under a multitude of Payday loan debt he went bankrupt....last Month?

Clive_Woody

Apples2 wrote: »

You do realise michael was so buried under a multitude of Payday loan debt he went bankrupt....last Month?

Nope. I am far too lazy to trek back through his posts but appreciate you sharing his history. It does cast his advice in a somewhat different light.

jamesd

dresdendave wrote: »

Well done, your approach to dealing with money problems is the correct one, finding an alternative solution rather than just borrowing more.

With respect, I don't think having a mental illness, declining to take the treatment, gambling away £3,500, with the refusal of treatment and illness as a likely causative factor and becoming bankrupt is a correct approach to borrowing or debt in general. Bipolar, the declining of treatment for it due to emotional flattening that costs the highs and the greatly elevated risk of high/stimulation-seeking through gambling are quite well known as a problem cluster.

Rather, it's an illustration that there are vulnerable adults in society who will not or cannot use debt responsibly and need a degree of protection. Such protection of the vulnerable is one of the significant issues that a regulator in this area has to consider.

Sadly I don't think that it is likely that there will be sufficient restrictions in a bankruptcy restriction order to protect many people in such a situation who may need lifelong protection from the ability to borrow inappropriately for medical reasons. The balance between a BRO that can protect against the consequences of mental illness while also allowing borrowing for uses that will improve life is a very tough one, as are many of the interactions of mental illness and credit. I doubt that a three year BRO will be sufficient but crafting one that can protect without also causing substantial harm is not easy and may well require such things as the involvement of mental health professionals with those who reach such a situation to work out a suitable protective plan.

It is also tough because it crosses at least four different regulator's areas of responsibility, from medicine for mental health, borrowing, gambling and on to bankruptcy. That's a challenge for any regulator to deal with.

Don't mistake this for a criticism of michael1983l. It's more about the issues with mental illness and credit and how tough they can be to deal with. It's an area where this regulator may well usefully be able to do further protective work.

michael1983l wrote: »

Yes I was diagnosed bi-polar and undergone treatment and medication for it, specifically highetened around the time the problems started.

michael1983l wrote: »

I stopped their treatment, because they just wanted me to take this drug and that drug and the olanzapine and setraline that they put me on originally played a major part in the problems that I obtained.
So as you can understand I didn't want to take the medication as it completely changed my personality last time and I have ended up divorced because of it,

michael1983l wrote: »

Yes it was, although most of that was over 2 years ago. I estimated in the 2 year period that they asked for that there was a gambling loss of about £3500. ... I agree that I deserve a BRO however I am hoping for no longer than 3 years, due to my medical history that goes along with the problems.