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

dunstonh · 17 February 2012 at 5:05PM

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.

Alan_McIntosh · 17 February 2012 at 5:27PM

dunstonh wrote: »

Surely if they are borrowing money, then the money is not theirs. It is the lender.

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 · 17 February 2012 at 5:33PM

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 · 17 February 2012 at 5:53PM

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.

chanz4 · 17 February 2012 at 5:55PM

We go on about payday loans, but what about provider, greenwoods we never seem to give them grief

Dave_Ham · 17 February 2012 at 5:57PM

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??

cod3 · 17 February 2012 at 6:30PM

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 · 17 February 2012 at 6:38PM

Are the pay day loan companies a recent phenomenon?

pawn shops used to do something similar. They have just gone mainstream.

cod3 · 17 February 2012 at 6:45PM

Aaah Thanks dunstonh. I had no idea pawnshops had such crazy interest rates.

Alan_McIntosh · 17 February 2012 at 7:05PM

One thing I would also add, which is a personal bugbear of mine, working in insolvency.

If a credit union lends £1,000 at 13% Apr and another loan company lends a £1,000 at 200% Apr over a year, if the client pays nothing, then the credit union will be owed £1,071 approx whereas the other company will be owed £2,373.

If that client then goes bankrupt and there is £2,000 available to pay the creditors then the credit union get approx £640 back. The other lender gets £1,360.

So the irresponsible lender still profits, the social responsible lender loses out. This is a simplified example, but imagine this on a bigger scale, with multiple pay day loan companies, higher interest rates that have contributed to the client eventually going bankrupt.

This is something I have been arguing has to be changed in Scotland. Dividend payments in bankruptcy should be paid on what remaining owed on the original amount loaned, with payments for interest only being paid after everyone has their original money back.

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

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