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Government looks to cap payday loans: what do you think?

(57 Posts)
KatieMumsnet (MNHQ) Mon 25-Nov-13 10:35:57

Hi there

Just wanted to flag some promising looking news, the government's announced a plan to introduce a cap on the cost of pay day loans.

This follows long campaigns against the dodgy doings of payday loan companies - including by us, on your behest; because of the human misery caused by payday loans, reported by Mumsnet users among many others, we were the first major UK website to ban advertising by pay day lenders.

We'll be watching carefully to see how the government's plan is implemented, but meanwhile, tell us what you think?

Tee2072 Mon 25-Nov-13 11:21:59

I think they should make them illegal. It's legal loan sharks, is what it is.

Ridiculous.

LEMisafucker Mon 25-Nov-13 11:35:24

^^That

Norudeshitrequired Mon 25-Nov-13 11:41:34

They should make them illegal, but I think people need to be responsible for themselves as well. Making them illegal might push some people into borrowing from even more dangerous companies.
Don't people realise that 4000% APR is beyond extortionate?

Tee2072 Mon 25-Nov-13 11:47:41

That's the industry's argument, Norud. That if they didn't have those, people would go to loan sharks.

And I agree people need to be responsible and take responsibility for their own debt and spending. But that would require an entire change in our society.

Norudeshitrequired Mon 25-Nov-13 11:53:09

I agree with that Tee and I think my post might have been a little harsh and shows little understanding for people who do use payday loan companies. But I do fear that we could return to more stories of people being terrorised, forced into prostitution and beaten up etc after falling behind on loan shark repayments.
I also hate bright house and those other companies that charge vulnerable people £4000 for a sofa and £3000 for a 50 inch tv repayable over 5million weeks at £50 a week from their benefits.
It's criminal, but I do still fear that some people will still be determined to borrow money at extortionate rates if these companies are outlawed and then we will have a bigger problem to deal with.

MinesAPintOfTea Mon 25-Nov-13 12:10:21

People do use loan sharks now though: at least you can declare bankruptcy with payday loans and not worry about losing your kneecaps.

I liked the C of E idea to compete payday loan companies out of existence or force their interest down at least. And maybe they wouldn't be add prevalent if we still had a decent social loan fund, free benefit sanctions and gaps etc. If choose predatory companies will get into that gap, the key is to remove the market gap not ban companies from attempting to full it.

weepingvipers Mon 25-Nov-13 12:28:19

I think capping interest rates and charges is an excellent idea however the fca have had the power to control interest for a while yet nothing has changed. Being able to do something isn't the same as actually doing it!

Yes introduce caps but then also enforce them. The pay day loan isn't the issue, the cost of them is so keeping the facility but forcing reasonable costs seems a sensible way forward to me.

Fairylea Mon 25-Nov-13 14:19:02

They should be made illegal.

But the government should also ensure budget or crisis loans are easily available to those who genuinely need them. I have seen many people slip through the system who desperately and genuinely need to borrow money and it is then they tend to turn to payday loans.

I agree that they should be outlawed. Along with ridiculous bank charges for going slightly overdrawn, or banks refusing to authorise small overdrafts (i'm talking 200 or less) which means the same people who need just a little help are constantly paying charges which stops them ever getting straight.

Then when you have money they fall over themselves to hand you more. Right when you don't need it.

About bloody time too. How anyone thought that a system that allows companies to charge over 2000+ % on any loan was OK, is beyond me.

Yes, there is a need for short term loans, but unregulated loans like these are appalling.

BillyBanter Mon 25-Nov-13 15:06:54

Doesn't get rid of the need for them. That's the real scandal.

Tee2072 Mon 25-Nov-13 15:08:35

Yes, definitely have some sort of provision for short term low loans. But not at their fees and interest.

somewheresomehow Mon 25-Nov-13 15:53:57

They should be outlawed full stop. If you can't pay your outgoings this month how the hell can anyone afford to pay the stupid amount of interest on top of the loan next month.
If employers were made to pay employee's weekly instead of monthly I'm sure people would be able to manage their money much better.

Boogers Mon 25-Nov-13 15:59:42

Do any of the above posters speak from a position of knowledge, for example ever having borrowed from payday lenders or loan sharks or have ever been kept awake at night and wondered what else you could sell to make ends meet and put food on the table, or is it all said from a position of relative creature comfort that 'they' (high interest loans) should be banned and that 'they' (the government) should do something about 'it' (extortionate loans given to those who can't afford them but who live hand to mouth and are at a point of desperation with nowhere else to turn)?

AliceinWinterWonderland Mon 25-Nov-13 16:35:08

I think they have a place in society, however, need to be monitored so it's not targeting people in a manner to entrap them into debt.

I've used a payday loan. I had an urgent car repair that needed to be taken care of immediately. I had a choice of going without the car (with a toddler and a disabled child) for school runs that would have been impossible. Or getting the payday loan and paying for the repair that day. I knew I had the money coming in to pay it in a week, but I couldn't just keep the children home from school for a week while waiting to repair the car. The interest wasn't bad, as it was only a week, and it allowed me to get the repair right away and get on with things.

I wouldn't have done it if I had another option, but I simply didn't. And I knew I'd be able to afford paying it back. Not ideal, but it worked for me as a one off. The problem is when people are taking payday loan after payday loan just to survive.

sleepyhead Mon 25-Nov-13 16:40:18

I got a Wonga loan a few years ago. I needed £80, I couldn't get the money from the bank in time and no guarantee I'd have got it at all. I didn't want to borrow from family for very particular reasons, plus would have been hard pushed to get the money in time. I needed the money very short term (could pay it back within 3 weeks.)

It worked well for me in very particular circumstances. It was well worth the £16 it cost me. If I hadn't been able to get that loan it would have cost me at least 10 times as much and probably a great deal more.

So, it's hard. You need to be utterly disciplined to borrow that way and that's unlikely to apply to most of their customers (I wouldn't have been in the position of needing the loan if our family finances had been more disciplined in the previous 6 months).

They, like the banks, will just not lend if their profit margins are not high enough, and the default rates for that sort of business are extremely high - other customers have to pay for those defaults.

I don't know how you make lending to very high risk customers more attractive without charging huge interest? Would taxpayers be willing to underwrite loans to people like me back then? I paid the loan back, but things were on a knife edge for me at that time. It wouldn't have taken much bad luck to have pushed me over.

Financial education is a MUST, but it is very, very hard to tell someone who has few nice things that you can't have that thing you really want/need from Brighthouse because it "just doesn't make financial sense dear" <pats head>. If you have £5 per week you can maybe get a fridge from there. You might not have the £50 all at one go to get one from Gumtree or the British Heart Foundation shop.

My mind boggles trying to work out what's for the best. I hate the payday lenders, but I'm not sure that cheap, easily available credit is possible. And if credit is not possible for the high-risk from legitimate lenders then the crooks will provide it. People won't just stop borrowing.

Tee2072 Mon 25-Nov-13 17:02:07

Position of knowledge Boogers.

Any other details are, frankly, none of your business.

Not that it matters. Anyone with any tiny bit of knowledge of how these places work can see how ridiculous their interest and fees are. Yes, desperate times call for desperate measures. This is why there needs to be better regulation of short term loans through legitimate businesses.

MinesAPintOfTea Mon 25-Nov-13 17:11:44

I can see how unfair the terms are, that's why I think we as taxpayers should be funding a social loan scheme to remove some of the need for these exploitive companies. Stopping people accessing loans at all may well make matters worse through leaving families unable to provide for children or pushed towards loan sharks. Because no commercial company will lend to the high risk customers st reasonable rates.

AliceinWinterWonderland Mon 25-Nov-13 17:14:04

Think about it. Getting rid of them completely is not the answer. Better regulation is.

Or are only the rich allowed to borrow when they need something... oh wait, they generally don't have to.

OrangeJuiceSandwich Mon 25-Nov-13 17:17:05

I'd rather have Wonga etc than have people going around breaking debtors legs.

AliceinWinterWonderland Mon 25-Nov-13 17:18:36

The problem with social loan schemes is then there are loads of conditions and things to fill out, and with a payday loan, you can just be a customer, not a charity need.

And what do you do if you go in and ask for a loan for a new washing machine, as your old one broke down and they say "no, it's not a necessity." I don't feel I should have to disclose why I need the loan. It's right up there with coming in to the council office, cap in hand, begging for assistance.

The government should promote and endorse the many hard working credit unions that can be found across the country.

They can be a real alternative to PDL's. Yes you need to have a history of saving with them in most cases, but that can have its rewards too.

The other problem is the terrible tactics PDL companies use if a person is in trouble. They do not engage, and instead try repeatedly to take money from the borrowers account, often leaving them with nothing.

People will argue that PDL are a short term thing and meant to be paid back withing days/weeks, but what about other loans like Pounds to pocket - Borrow £500 and pay £79.09 per month for 12 months at a fixed interest rate of 140% per year.The total charge for credit is £449.01 (all interest). The Total Repayable is £949.01. 278% APR representative. (from thier website)

Wonga also used to claim tht taking out a PDL would help build your credit rating, when in fact the opposite is true!

weepingvipers Mon 25-Nov-13 18:49:07

The thing is it isn't just people in desperate need who fall foul of them. And it's not always taken for catastrophic situations. I know a lot of people who use/have used them and the only person to use them in truly desperate need is me.

I had to plug the gap when tax credits failed and they offered me a crisis payment of£50 for rent, food, bills - I was only offered that much because it had been four months since they stopped paying me. Prior to that I wasn't eligible to anything! However friends I know used them for things like paying for tickets for a group of people then collecting the ticket price back. Paying for a weekend break because they were too desperate to wait and so on. Each of them ended up in the classic situation of borrowing more to pay back or failing to pay and accumulating interest etc. Although these people didn't start out in dire need they all were massively affected by the pay day loan structure. At least one friend is still paddling upstream to get out of the mess.

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