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  • FIRST POST
    • MSE Guy
    • By MSE Guy 17th Feb 12, 12:31 PM
    • 1,628Posts
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    MSE Guy
    MSE News: Could payday loans be the next mis-selling scandal?
    • #1
    • 17th Feb 12, 12:31 PM
    MSE News: Could payday loans be the next mis-selling scandal? 17th Feb 12 at 12:31 PM
    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
    ..."

Page 1
    • dtaylor84
    • By dtaylor84 17th Feb 12, 1:08 PM
    • 635 Posts
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    dtaylor84
    • #2
    • 17th Feb 12, 1:08 PM
    • #2
    • 17th Feb 12, 1:08 PM
    Could we perhaps have a mis-buying scandal instead?
    • dunstonh
    • By dunstonh 17th Feb 12, 1:09 PM
    • 98,581 Posts
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    dunstonh
    • #3
    • 17th Feb 12, 1:09 PM
    • #3
    • 17th Feb 12, 1:09 PM
    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.
    Last edited by dunstonh; 17-02-2012 at 1:13 PM.
    I am an Independent Financial Adviser (IFA). Comments are for discussion purposes only. They are not financial advice. If you feel an area discussed may be relevant to you, then please seek advice from an Independent Financial Adviser local to you.
  • talana
    • #4
    • 17th Feb 12, 2:11 PM
    • #4
    • 17th Feb 12, 2:11 PM
    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.
    Originally posted by 2sides2everystory
    Would that be basically every single financial institution then (bar the Islamic ones)?
    Nice balanced view, well done.
    • grumbler
    • By grumbler 17th Feb 12, 2:41 PM
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    grumbler
    • #5
    • 17th Feb 12, 2:41 PM
    • #5
    • 17th Feb 12, 2:41 PM
    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.
    We are born naked, wet and hungry...Then things get worse.

    .withdrawal, NOT withdrawel ..bear with me, NOT bare with me
    .definitely, NOT definately ......separate, NOT seperate
    should have, NOT should of
    .....guaranteed, NOT guarenteed
    • ~Brock~
    • By ~Brock~ 17th Feb 12, 2:50 PM
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    ~Brock~
    • #6
    • 17th Feb 12, 2:50 PM
    • #6
    • 17th Feb 12, 2:50 PM
    Get back in your box. Bloody ambulance chasers, leeching off society and increasing costs for everyone.
    • michaels
    • By michaels 17th Feb 12, 3:14 PM
    • 23,099 Posts
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    michaels
    • #7
    • 17th Feb 12, 3:14 PM
    • #7
    • 17th Feb 12, 3:14 PM
    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.
    Last edited by michaels; 17-02-2012 at 9:34 PM.
    Cool heads and compromise
    • VfM4meplse
    • By VfM4meplse 17th Feb 12, 3:19 PM
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    VfM4meplse
    • #8
    • 17th Feb 12, 3:19 PM
    • #8
    • 17th Feb 12, 3:19 PM
    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.
    Value-for-money-for-me-puhleeze!

    "No man is worth, crawling on the earth"- adapted from Bob Crewe and Bob Gaudio

    Hope is not a strategy ...A child is for life, not just 18 years....Don't get me started on the NHS, because you won't win...I love chaz-ing!
    • balmk
    • By balmk 17th Feb 12, 3:27 PM
    • 609 Posts
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    balmk
    • #9
    • 17th Feb 12, 3:27 PM
    • #9
    • 17th Feb 12, 3:27 PM
    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
    • By SnowMan 17th Feb 12, 3:52 PM
    • 3,202 Posts
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    SnowMan
    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?
    Originally posted by VfM4meplse
    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.
    Last edited by SnowMan; 17-02-2012 at 6:17 PM.
    I came, I saw, I melted
    • dunstonh
    • By dunstonh 17th Feb 12, 4:05 PM
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    dunstonh
    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.
    Surely if they are borrowing money, then the money is not theirs. It is the lender.

    I think we have to be careful in threads like this to make sure that views do not indicate you are at the extreme of that side. For example, I am no fan of payday loans. However, they exist because there is a need. I also understand their business model and the greater risks they have. I just have trouble with it being classed as mis-sale as these companies do not "sell" the loan. They are "bought" by the borrower.

    Consumer protection is important but you can take it too far. Where is the personal responsibility that needs to go with it.
    Last edited by dunstonh; 17-02-2012 at 5:36 PM.
    I am an Independent Financial Adviser (IFA). Comments are for discussion purposes only. They are not financial advice. If you feel an area discussed may be relevant to you, then please seek advice from an Independent Financial Adviser local to you.
  • Alan McIntosh
    Surely if they are borrowing money, then the money is not theirs. It is the lender.
    Originally posted by dunstonh
    There is no question money that is loaned, or at least the capital loaned belongs to the lender, but the question does not relate to that.

    There are no issues that if your borrow 1,000 that 1,000 should be repaid if you have the means, however, there are other issues relating to whether it should have been loaned and at the interest rate it is given at.

    Borrowers have a responsibility to themselves and their creditors, but creditors do also, not only to the borrowers but other lenders. Many of these payday loan companies lend to people without carrying out any affordability checks and to that sense act irresponsibly. They also often make people situation worse because of this and act in away that damages the interests of lenders.

    I don't know how many clients I have dealt with over the years who have had to go bankrupt because of these types of loans and the interest charged tip them over the edge from doing a repayment plan to having to use a type of insolvency. So yes, they take risks, but their high level of risk taking often increases the risks for other social responsible lenders and they know this.
    • frosty
    • By frosty 17th Feb 12, 4:33 PM
    • 1,153 Posts
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    frosty
    My son took out a Wonga loan and has to pay back 148.00 on the 21/2/12,I only found out by accident....my husband open the letter by mistake,I was amazed they lent the money because he had debt collectors after him for a mobile phone bill debt,he was 200 overdrawn at the bank and is unemployed.I thought they would do a credit check.He has special needs and doesnt understand the interest rates.
    • SnowMan
    • By SnowMan 17th Feb 12, 4:53 PM
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    SnowMan
    Take a theoretical example:

    A pay day loan company loans 200 to somebody. They know with certainty that the person involved will never be able to afford the payments and will eventually default causing that individual huge personal problems. But the loan company are sure that before they default they will get back 1,000 from the person in payments including interest and hefty charges leaving them a tidy profit.

    Should the loan company be able to give this loan and then argue that the individual is completely at fault and it was the personal responsibility of the person taking out the loan?

    I would like to think that most people would say that the loan company should not be allowed to get away with this. That is not to say the person should not have to pay back at least 200 but if the redress paid by the loan company was something less than 800 (=1000 -200) and we can argue what that amount should be then would that not be a reasonable outcome?

    Now real life is not as clear cut as this but in real life at what point do you say that the company moves from being blameless to having some responsibility.

    I would argue that in the examples given in the article it is not completely unreasonable to say that the loan company should be held partly responsible.
    Last edited by SnowMan; 17-02-2012 at 4:59 PM.
    I came, I saw, I melted
    • chanz4
    • By chanz4 17th Feb 12, 4:55 PM
    • 10,056 Posts
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    chanz4
    We go on about payday loans, but what about provider, greenwoods we never seem to give them grief
    Don't put your trust into an Experian score - it is not a number any bank will ever use & it is generally a waste of money to purchase it. They are also selling you insurance you dont need.
    • Dave Ham
    • By Dave Ham 17th Feb 12, 4:57 PM
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    Dave Ham
    On a side note; when Lloyds or Santander mis sold ppi, they are still going to be there to claim from.

    If it is decided that these payday loans were mis-sold, how many of these companies are going to stay there and pay the money back - you guessed it.

    Lucky I doubt they are covered by the Financial Services Compensation Scheme.

    But seriously, who foots the bill if the OFT or alike go after these firms - and with what end result??
    I am a Mortgage Broker
    You should note that this site doesn't check my status as a Mortgage Broker, so you need to take my word for it.
    This signature is here as I follow MSE's Mortgage Adviser code of conduct. Any posts on here are for information and discussion purposes only and shouldn't be seen as financial advice.
    • cod3
    • By cod3 17th Feb 12, 5:30 PM
    • 698 Posts
    • 2,368 Thanks
    cod3
    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.

    No offense intended for anyone struggling. Mine is a genuine question.
    • dunstonh
    • By dunstonh 17th Feb 12, 5:38 PM
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    dunstonh
    Are the pay day loan companies a recent phenomenon?
    pawn shops used to do something similar. They have just gone mainstream.
    I am an Independent Financial Adviser (IFA). Comments are for discussion purposes only. They are not financial advice. If you feel an area discussed may be relevant to you, then please seek advice from an Independent Financial Adviser local to you.
    • cod3
    • By cod3 17th Feb 12, 5:45 PM
    • 698 Posts
    • 2,368 Thanks
    cod3
    Aaah Thanks dunstonh. I had no idea pawnshops had such crazy interest rates.
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