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  • FIRST POST
    • MSE Guy
    • By MSE Guy 8th Dec 10, 9:22 AM
    • 1,628Posts
    • 1,255Thanks
    MSE Guy
    MSE News: Have your say on high cost lending
    • #1
    • 8th Dec 10, 9:22 AM
    MSE News: Have your say on high cost lending 8th Dec 10 at 9:22 AM
    This is the discussion thread for the following MSE News Story:

    "Consumers have just days to help the Government formulate the way it regulates payday loans and similar forms of credit ..."

Page 1
  • KingElvis
    • #2
    • 8th Dec 10, 10:03 AM
    • #2
    • 8th Dec 10, 10:03 AM
    caveat emptor
    Originally posted by Old Wrinkly
    Trouble is, they don't
    "We want the finest wines available to humanity, we want them here, and we want them now!"
  • Premier
    • #3
    • 8th Dec 10, 11:04 AM
    • #3
    • 8th Dec 10, 11:04 AM
    Have your say on high cost lending
    It's too high.

    That's what you wanted us to say wasn't it?

    Now I'm sure you understand that is a lender is forced to reduce the cost they charge of them lending to some, they will need to increase their income from elsewhere.
    You think a lending rate of 2500% is too high.
    I would suggest that whilst the figure is mathematically correct, it probably reflects the actual cost of that particular loan which is probably for a small amount and unlikely to be for a whole year anyway.

    What cap would you suggest? Remember the BoE rate is currently 0.5%.
    Lets be generous and suggest a 10x that value, eh? 5%
    What would the actual income of the lender be on the loan at 2500% if that was only 5%? I'm sure you realise that won't actually cover the cost of the lending (including collection)?

    How about a cap of 100x? i.e 50%
    Remembering what I said about a lender having to recoup any losses incurred by reducing what they can charge to some customers, could you afford to repay your mortgage if the interest rate was 50%??? I'm sure many others couldn't.

    As Martin says, limiting interest rates is not the way to go.
    However as can be seen from the example of the 20 quid and the beer, any loan can be put into terms of a percentage. So I'm not sure how one could not cap a percentage but could cap the cost.

    Anyway
    The cost of lending is too high
    The cost of petrol is too high
    The cost of taxes is too high
    The cost of food is too high
    The cost of living is too high
    The cost of holidays is too high
    The cost of electric is too high
    The cost of gas is too high
    .
    .
    .
    and the amount we're all paid is far too low.

    Well we can dream, can't we?
    Last edited by Premier; 08-12-2010 at 11:17 AM.
    • ~Brock~
    • By ~Brock~ 8th Dec 10, 11:35 AM
    • 1,600 Posts
    • 1,519 Thanks
    ~Brock~
    • #4
    • 8th Dec 10, 11:35 AM
    • #4
    • 8th Dec 10, 11:35 AM
    Most consumers have absolutely zilch knowledge or appreciation of the costs involved in running any type of lending business, and view interest, no matter how much or little it may be, as pure profit to the lender.

    The result of this is that consumers, and their representatives, expect to have access to forms of credit at a price that in no way reflects the risk and costs involved in providing it. Certain ridiculous features of the APR calculation further fuel the allegations of profiteering, when a cursory glance as many lenders financial accounts often shows that nothing is further from the truth!

    Sadly, this tends to cross over to the more sensationalist elements of the media, who still view those lenders who are left after the last tree shake as inherently predatory creatures who prey on those who can ill afford their product. (Question: Why on earth would any lender want to lend to someone who cannot repay? - it is commercial suicide!)

    The result, if left unchallenged, is the well intended but potentially misguided attempts such as this to impose regulations that if not thought through will bring no end of unintended consequences due to a distorted market.

    There are those in our society that still harbour the view that ALL credit is bad and that we would be best off with an almost feudal monetary system with limited access to credit, so that the 'vulnerable' element of our society are not exploited. That is all very well, but it doesn't sit with other aspects of our consumerist society that exerts peer pressure on people and promotes the 'I want it now' mentality, and this 'vulnerable' element will still therefore attempt to seek ways of borrowing......possibly fuelling demand for an even bigger credit black market than we currently have in the UK.

    Regulatory intervention in this area is not, in my opinion, going to do anything positive on a wider scale for consumers, because those cheaper interest rates simply wont be there, and neither will the lenders, who will have withdrawn from all or part of the market, thus further restricting consumer choice. Is that really yet another victory for consumers?
    • michaels
    • By michaels 8th Dec 10, 1:34 PM
    • 22,411 Posts
    • 103,166 Thanks
    michaels
    • #5
    • 8th Dec 10, 1:34 PM
    • #5
    • 8th Dec 10, 1:34 PM
    What a stupid idea.

    Three choices if you are short 200 at the end of the month
    1) borrow 200 quid for a week on a pay day loan and pay 20 for the privilege
    2) go over overdraft limit and pay 200 in fees and charges for bounced direct debits etc
    3) Go to a loan shark and pay 100 in interest.

    I agree with Martin, the sensible thing to do is tell the pay day loan providers that they can not charge more than 50p interest for such a small amount of credit. Of course that will make their business model uneconomic so they will withdraw the product leaving the borrower with only options 2 or 3 to chose from.

    That would certainly be of real service to the borrower...not!

    Martin I though better of you.
    Cool heads and compromise
    • MSE Martin
    • By MSE Martin 8th Dec 10, 1:49 PM
    • 8,115 Posts
    • 42,285 Thanks
    MSE Martin
    • #6
    • 8th Dec 10, 1:49 PM
    • #6
    • 8th Dec 10, 1:49 PM
    What a stupid idea.

    Three choices if you are short 200 at the end of the month
    1) borrow 200 quid for a week on a pay day loan and pay 20 for the privilege
    2) go over overdraft limit and pay 200 in fees and charges for bounced direct debits etc
    3) Go to a loan shark and pay 100 in interest.

    I agree with Martin, the sensible thing to do is tell the pay day loan providers that they can not charge more than 50p interest for such a small amount of credit. Of course that will make their business model uneconomic so they will withdraw the product leaving the borrower with only options 2 or 3 to chose from.

    That would certainly be of real service to the borrower...not!

    Martin I though better of you.
    Originally posted by michaels

    As noted - Im not a fan of APR caps, but I am of lending charge caps. These caps are in place in many states in the US, Canada and most of Europe - and often with the same companies that operate here. The idea it won't be economic to continue to operate is a view I used to hold, but having seen the evidence am no longer convinced.

    Yet remember I am not saying a 20% APR I'm talking about a 20% total cost cap on short term lending. A very different proposition. Yet it isn't easy - but I'm very pleased to see people are trying to do something about the plague of payday lenders, hp lenders and other non-mainstream lending that is rapidly expanding on our highs streets (often as its more profitable here than in other countries).
    Martin Lewis, Money Saving Expert.
    Please note, answers don't constitute financial advice, it is based on generalised journalistic research. Always ensure any decision is made with regards to your own individual circumstance.

    Don't miss out on urgent MoneySaving, get my weekly e-mail at www.moneysavingexpert.com/tips.

    Debt-Free Wannabee Official Nerd Club: (Honorary) Members number 000
    • michaels
    • By michaels 8th Dec 10, 1:59 PM
    • 22,411 Posts
    • 103,166 Thanks
    michaels
    • #7
    • 8th Dec 10, 1:59 PM
    • #7
    • 8th Dec 10, 1:59 PM
    I think the message is confused, you do not support an APR cap but you seem to be suggesting we support an MP who is calling for just such a cap?

    In more depth - is your suggestion that maximum total cost of credit is capped on a once and for all basis or is it a per year cap - otherwise what would stop someone making that 1 week loan last 10 years in the knowledge that the lender can never recover more than the fixed amount of interest?

    As noted - Im not a fan of APR caps, but I am of lending charge caps. These caps are in place in many states in the US, Canada and most of Europe - and often with the same companies that operate here. The idea it won't be economic to continue to operate is a view I used to hold, but having seen the evidence am no longer convinced.

    Yet remember I am not saying a 20% APR I'm talking about a 20% total cost cap on short term lending. A very different proposition. Yet it isn't easy - but I'm very pleased to see people are trying to do something about the plague of payday lenders, hp lenders and other non-mainstream lending that is rapidly expanding on our highs streets (often as its more profitable here than in other countries).
    Originally posted by MSE Martin
    Cool heads and compromise
    • pjsmiffy
    • By pjsmiffy 8th Dec 10, 2:21 PM
    • 61 Posts
    • 45 Thanks
    pjsmiffy
    • #8
    • 8th Dec 10, 2:21 PM
    • #8
    • 8th Dec 10, 2:21 PM
    Capped lending charges is the way to go.

    I think most High street banks charge set up fees and these if called interest would send the APR through the roof.

    Perhaps lenders should be encouraged to keep these fees to a one off and thus lower the cost for people who use there services again.

    The law should require debt advice to be given out with such loans along with how to access "crisis" loans (often available to those on benefits from there council)

    The 2500% APR is not ideal but it beats the loanshark that will (Use your imagination) if you don't pay.
    • ~Brock~
    • By ~Brock~ 8th Dec 10, 2:41 PM
    • 1,600 Posts
    • 1,519 Thanks
    ~Brock~
    • #9
    • 8th Dec 10, 2:41 PM
    • #9
    • 8th Dec 10, 2:41 PM
    As noted - Im not a fan of APR caps, but I am of lending charge caps. These caps are in place in many states in the US, Canada and most of Europe - and often with the same companies that operate here. The idea it won't be economic to continue to operate is a view I used to hold, but having seen the evidence am no longer convinced.
    Originally posted by MSE Martin
    Could you share this evidence with us please? There appears to be plenty of opinion against such rate caps as well as for it (Example).

    Any rate Cap in the UK will cause a seismic shift in the business model of any lender that chooses to, or can viably, remain in the market.

    This shift is likely to result in a reduction in their appetite to risk and whilst to the casual observer there is still a functioning industry in operation, in reality there has been a huge gap opened up due to credit being now unavailable to those who used to have that option, which will again restrict consumer choice.

    Its a bit like capping premium rates on motor insurance policies, which is also a 'price to risk' product - the result could simply be that nobody under the age of 25 could have a policy anymore!

    This also seems like going over old ground to me. The OFT have only this year conducted their own study of the market and concluded that a CAP on Payday loans would be inappropriate. Are we sure that this isn't just an example of a back bencher with a bee in her bonnet looking to make a name for herself?


    Capped lending charges is the way to go.

    I think most High street banks charge set up fees and these if called interest would send the APR through the roof.

    Perhaps lenders should be encouraged to keep these fees to a one off and thus lower the cost for people who use there services again.

    The law should require debt advice to be given out with such loans along with how to access "crisis" loans (often available to those on benefits from there council)

    The 2500% APR is not ideal but it beats the loanshark that will (Use your imagination) if you don't pay.
    Originally posted by pjsmiffy
    I don't think this is aimed at high street banks per se, and even if it was you will find that loan set up fees must also be included in the quoted APR.

    From next year, under new rules brought in via the Consumer Credit Directive, this also applies to any fees charges by loan brokers.

    There are also new rules coming in to fully consider the affordability of the loan based ont he borrowers circumstances and also to require a detailed explanation be given to any prospective borrower to include the potential consequences of a failure to repay.
    • brat673
    • By brat673 8th Dec 10, 4:55 PM
    • 10 Posts
    • 13 Thanks
    brat673
    Ban 2500% Loans
    Put the shysters out of business once and for all. Limit the Aprs after a sensible discussion as to the maximum.
    • sandraroffey
    • By sandraroffey 8th Dec 10, 5:32 PM
    • 1,345 Posts
    • 1,518 Thanks
    sandraroffey
    everyone is talking about payday loans etc but has anyone ever looked at provident personal credit??

    lots of people have no choice but to go this type of lender. and you pay back almost, and sometimes more than, double what you borrowed.

    not good, but for a lot us us, its needs must.
    • ~Brock~
    • By ~Brock~ 8th Dec 10, 5:39 PM
    • 1,600 Posts
    • 1,519 Thanks
    ~Brock~
    everyone is talking about payday loans etc but has anyone ever looked at provident personal credit??

    lots of people have no choice but to go this type of lender. and you pay back almost, and sometimes more than, double what you borrowed.

    not good, but for a lot us us, its needs must.
    Originally posted by sandraroffey
    Well you can cap the rate and put them out of business (echoing the obviously wise words of brat673) which will deal with the problem you allude to about people having no choice but to go with them, because they then wont be able to go with anyone!

    Two questions.

    1. Is that what you really want?

    2. If it is, then what actually gives you the right to dictate to another consumer that they should not be able to use their service if they wanted to and went into it with their eyes open?
    • Gorgeous George
    • By Gorgeous George 8th Dec 10, 7:09 PM
    • 7,797 Posts
    • 8,484 Thanks
    Gorgeous George
    Ok...

    1. Borrow 1,000 with 200 cost limit to be repaid in three months
    2. Time to repay but still haven't won the lottery? Can't roll the loan over so find another lender and borrow 1,200 to be repaid in three months.
    3. Repeat 2. until all legitimate lenders are exhausted then find an illegal lender or drag family down with you.

    If politicians want to help, maybe they could contribute some of their expenses to help those needing dodgy loans.

    GG
    • 50Twuncle
    • By 50Twuncle 9th Dec 10, 9:50 AM
    • 9,201 Posts
    • 2,334 Thanks
    50Twuncle
    Ok...

    1. Borrow 1,000 with 200 cost limit to be repaid in three months
    2. Time to repay but still haven't won the lottery? Can't roll the loan over so find another lender and borrow 1,200 to be repaid in three months.
    3. Repeat 2. until all legitimate lenders are exhausted then find an illegal lender or drag family down with you.

    If politicians want to help, maybe they could contribute some of their expenses to help those needing dodgy loans.

    GG
    Originally posted by Gorgeous George
    Alternatively stop drinking/smoking/buying lottery tickets and pay the loan off - and have a more healthy life ?
    • Tuesday
    • By Tuesday 29th Dec 10, 2:21 PM
    • 49 Posts
    • 34 Thanks
    Tuesday
    Cost of payday loans
    [QUOTE=michaels;39185194]

    Three choices if you are short 200 at the end of the month
    1) borrow 200 quid for a week on a pay day loan and pay 20 for the privilege.

    Have a look at what they actually charge - for a loan of 200 the repayment would be between 250 and 260. Quite a bit more than 20.
    If the borrower fails to pay back in no more than 30 days, then the loan may be rolled over - with another 50-60 added. So borrowing 200 for 2 months costs 300-320.
    I'm with Martin - we need laws to protect the most vulnerable in our society against these people.
  • Apples2
    [QUOTE=Tuesday;39719276]

    Three choices if you are short 200 at the end of the month
    1) borrow 200 quid for a week on a pay day loan and pay 20 for the privilege.

    Have a look at what they actually charge - for a loan of 200 the repayment would be between 250 and 260. Quite a bit more than 20.
    .
    Originally posted by michaels
    20 is about right, not doubting you have found worse, but 200 for a week from Wonga is 19.69

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