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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.

Norudeshitrequired Mon 25-Nov-13 19:45:17

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.

I agree that financial education is required, but for some people all the education in the world won't stop them from wanting the best and biggest tv that bright house has to offer and being prepared to hand over a big percentage of their weekly benefits to pay for it. So what if the kids have to eat beans on toast six nights a week, at least they've got the best tv on the street to watch cbbc.

MoreBeta Mon 25-Nov-13 20:09:57

They should stop bank charges like $30 for every debit if overdrawn. I used to work in a credit union and often saw people wit £300 debt just form bank charges and they were on benefits and simply had no way of paying it back. The charges just kept piling up after that and they were in perpetual debt to a bank that just treated them like a cash cow.

Bank charges are just as bad as pay day loans.

Ohhelpohnoitsa Mon 25-Nov-13 20:23:16

but what is rhw definition od a loan shark? 5460'/, interest has surely got to feature in the definition, legal or not? ridiculous that these firms are allowed to operate.

Tee2072 Mon 25-Nov-13 21:24:07

I would agree with that as well MB.

BillyBanter Mon 25-Nov-13 21:52:14

All the financial education in the world won't stop emergencies happening to people who have not a penny to spare and no family or friends able to help them out.

cornflakegirl Mon 25-Nov-13 22:25:37

I don't think they should be banned, and I don't think the high apr is a problem per se, as long as the interest cost is clear up front. But I think something is needed to stop a short term loan turning into a long term loan - like maybe they can't add any more interest after the second loan rollover? Don't know if that would just make the loans too expensive to start with though, or lead to eg other hidden fees.

slightlygoostained Tue 26-Nov-13 00:37:40

This thread is reminding me that I meant to take out a savings account with my local credit union.

I figure that if they have more people saving with them, they can afford to lend to more people?

Terrortree Tue 26-Nov-13 01:47:47

Having only just arrived in the UK, I am astounded that payday loans are legal. I was so shocked the first time I saw one of the adverts: clearly stating a 4000% plus APR.

I know a lot of people who are well educated (degree level) but have no idea how to calculate a percentage. Now, if you aren't well educated, and aren't well paid. Caveat Emptor!

Many people, until they get a mortgage, and even after, do not understand what APR means.

I know far too many people who took out 0% credit cards when they were all the rage - and spent the balances. Then the worm turned. I know many people who took out mortgages during the boom years.

It is not acceptable to make profit from ignorance. We, as a society, should impress on those with power, that exploiting others to such an extent is no different than sending children out to work during Victorian times. People who are vulnerable should not be exploited for capital gain in such a sinister fashion.

(And I am certainly no leftie).

MinesAPintOfTea Tue 26-Nov-13 06:58:34

The definition of a loan shark is someone who operates outside the rule of law. So local criminal gangs usually who are add happy to have someone bound to them and able to be intimidated as make a straight-forward profit. Also can't escape them via iva or bankruptcy and generally far worse to fall into a debt tap with.

Speaking from bitter experience I still agree with posters above that there is a time and place where can be useful.

But only for people with the means and willpower/control to use them carefully.

They should not be so easy to get. Once someone has one, they shouldnt be able to take more until it's cleared, and certainly not to pay the first one off.

Norudeshitrequired Tue 26-Nov-13 09:48:59

Many people, until they get a mortgage, and even after, do not understand what APR means.

I don't think APR is difficult to understand.
But for those that don't understand about interest rates they will get told how much they need to pay back when they take out a loan. If they are told that they have to pay back £130 on a £100 loan within 4 weeks then that is something that most people will fully understand. Similarly, if someone buys a laptop from bright house and are told the cash price is £600, but if paid over 4 years using weekly instalments the total cost is £1100 then it isn't difficult to work out that it's a rip off.
I do think that more regulation is needed over these companies, but let's not pretend that everyone using them is thick and can't work out that the credit charges are astronomical.

morethanpotatoprints Tue 26-Nov-13 10:41:01

I don't think they should be illegal as it may mean people going to more unscrupulous lenders.
Its ok saying people should be encouraged to manage their finances better.
chances are if you need pay day loans you are incapable of managing money.
This doesn't mean these people should be fair game for extortion which is what pay day loans are.
I think the cap should be very low.

morethanpotatoprints Tue 26-Nov-13 10:45:30

Terror

Do you think people who don't understand what APR is, shouls be getting a mortgage?
I can't understand why anybody wouldn't know what it means, I'm not the brightest but certainly wasn't going to sign a loan for all that money (mortgage) without understanding about it. Do people really not do their homework before hand?

AliceinWinterWonderland Tue 26-Nov-13 13:53:25

if someone buys a laptop from bright house and are told the cash price is £600, but if paid over 4 years using weekly instalments the total cost is £1100 then it isn't difficult to work out that it's a rip off.

Exactly. And while they're thinking it's a rip off, at the same time, they may have a child in school and it's absolutely the only way they can get them a laptop to use for their homework and do online research. Or do go online to look for jobs.

I think it's ridiculous to think that people are using these companies because they don't know better. They're doing it because they either can't afford something up front (such as refrigerator or washer or the like) or because they are in a financial bind and have no other options.

chances are if you need pay day loans you are incapable of managing money.

Or you've had an unavoidable emergency that needs money up front.

I think making assumptions that people are simply incapable of managing money are not helpful.

cornflakegirl Tue 26-Nov-13 17:30:45

morethanpotatoprints - do you really understand what APR is? I don't think very many people do. It's the internal rate of return of the loan - the discount rate that you have to apply to your repayments such that the sum of the discounted repayments equals the original value of the loan. I had no idea about that until I had to understand it for work, and I certainly don't think it's straightforward for most people.

APR is useful to compare two broadly similar loans, although it can be manipulated. I don't think it's so helpful for short term loans. "Borrow £100, repay £130" strikes me as much more useful

Norudeshitrequired Tue 26-Nov-13 17:39:06

Exactly. And while they're thinking it's a rip off, at the same time, they may have a child in school and it's absolutely the only way they can get them a laptop to use for their homework and do online research. Or do go online to look for jobs.

Most people can access the computers at the local library or children can often use the computers at school after the normal school closing time, some schools even loan computers for free as they know that not every child has one at home.
There are some people who will genuinely need a laptop / desktop for the child's homework due to being unable to access the internet anywhere, but most people just don't want the inconvenience of using the library/ school computers.
The problem is that people do think along the lines of 'I need a laptop because everyone else has one for their child at home'. The lines of needs and wants have become very blurred.

morethanpotatoprints Tue 26-Nov-13 17:53:25

Cornflake

No, I don't think it is too difficult to understand APR in relation to borrowing money and working out how much you will have to pay back.

Alice The majority of people I know who have had pay day loans have been incapable of managing their finances. of course there are going to be some people for whom it is unavoidable due to no fault of their own.

reelingintheyears Tue 26-Nov-13 18:17:21

Ban them.

Terrortree Tue 26-Nov-13 18:36:12

Cornflake girl has it - APR isn't quite as straightforward as you'd think - and many people really don't understand it. Payday loans are very effective at making your much worse off over time (and within a very short period of time for many), much drastically so than inflation eroding savings (which the well off moan about).

The example of a computer being 1,100 pounds in four years time should note: The spending value of the pound will fall during those four years due to inflation. Thus the 1,100 needs to be discounted to current pound power to understand the true value at this current time (what it is actually going to cost you). If you were to use that computer to run a business, which would surpass the value of the loan repayments: it could prove to be a very sensible decision to purchase it. Rip off? No. It has a value as opposed to being purely consumptive (even if that value is to enable one's child to participate in their own education).

Payday loans are much more consumptive and with no real tangible asset required to make it a sensible decision - clearly not in all cases, but there is no safety net. They are all too readily available, and make the people who can least afford to be poorer, much more poorer.

For the record, I would never prescribe who should buy their own home nor correlate any right to do so with an appreciation of APR. Mortgages are just loans that are much more sensible, and enables in the long term, independence and security. However, any loan one takes out is a gamble on one's future health and wealth.

MyMILisfromHELL Tue 26-Nov-13 18:51:33

Terror. You're no leftie. So you're a right winger then? Did you know the right wing parties & their voters can't stand immigrants/foreigners? Ha

MyMILisfromHELL Tue 26-Nov-13 18:52:51

Right wingers in this country that is.

Terrortree Tue 26-Nov-13 21:27:45

I don't think that not being particularly to the left voting wise, makes me (or anyone else) a racist or anti immigrant. I think it implies a belief in capitalism v. socialism (two approaches to economic policies). I also don't understand why you would feel the need to bring race and immigration issues into a discussion about payday loans (something closely related to economics). It is perfectly possible to believe in free market economies and avoid being jingoistic.

Sorry about that bit of bad news.

Norudeshitrequired Tue 26-Nov-13 21:28:38

Terror - computers deteriorate and date very quickly and buying a £600 laptop for a credit price of £1100 over 4years is as daft as taking out a payday loan if you can't afford to repay it at the due time. You will have paid £275 during the first year, which is enough to buy a laptop outright.

Buying a home is totally different because long term a home will almost certainly appreciate rather than depreciate, even taking into account peaks and falls in the housing market.

Bright house and payday loan companies are all evil companies preying on vulnerable people, but some of their customers are the type who will live beyond their means at any daft cost.

cornflakegirl Wed 27-Nov-13 13:07:44

morethan I work in insurance, and we offer annual payments with the option to pay by instalment. You cannot work out (accurately) from our published APR how much the interest cost is. It isn't simple.

Also, to respond to your second point, most people who don't have payday loans are "incapable of managing their finances". A large proportion of the people that I work with, on decent salaries, live month to month and have no real buffer for emergencies. People who use payday loans aren't necessarily profligate. They're just normal.

custardo Wed 27-Nov-13 13:23:40

there absolutely is a need for instant cash ( poster above mentioned breakdown in car) and very few people who are poor can afford to save for 'just in case shit happens' events.

clearly the need is there or these loan companies wouldn't exist.

what we really need is for a viable alternative, I have to say that I love the ethos of credit unions and I think they are a brilliant resource - but fuck me - its too complicated, each credit union has a different set of loan principles - you are required to save before you borrow, or not, or you can borrow x amount if you save x amount - Also they run on a shoestring, it would be great to see some government backed advertising in places where people can see - like the telly.

dya know what, if I needed my car to get to work to keep my job, pay day lenders have me over a barrel - they could charge me 100000% interest over the rest of my lifetime, rational and planning - in that moment, don't figure into the equation

There needs to be an alternative as people need money in times of a crisis. I personally think a limit should be enforced on the APR these companies charge, most credit/store cards are 29.9%, whereas these payday loan companies are in the 1000%shock

Brighthouse is another rip off merchant place where the lowpaid & unemployed are conned into believing they got a good deal when in reality they are paying 2,3 or even 4 times over the odds for the same item that is no where near that price if bought out right.

custardo Wed 27-Nov-13 17:22:24

through work, i helped a guy - he was looking after his kids on his own, no money, washer broke. he went to brighthouse - they quoted something ridiculous, i directed him to credit union - he got a loan for the same amount as brighthouse were charging for a washer
and
shit you not

got a brand spanking new washing machine from a normal shop and had money to take his kids on the first holiday they ever had.

morethanpotatoprints Wed 27-Nov-13 21:52:19

cornflake

You don't need to understand very much to work out how much you will end up paying back, when taking out a pay day loan.
By definition if you have to have one you are incapable of managing your finances, if you were capable you wouldn't need one as people are usually desperate for the money, hence the ability of companies to charge a high APR.
I am not saying it is always because a person has been foolish, or that it ia always their fault, but at that time they are incapable of managing the finances they have.
I have been skint, not had money for things. We saved our £5 per week until we could afford it as we learned from an early age what a trap credit can be. I was 14 when I learned this, my dd is 9 and learning about it. We taught our ds when they were younger.
I don't have a GCSE in Maths, you don't have to have that much up top tbh.

cornflakegirl Wed 27-Nov-13 22:56:57

I agree, no understanding of APR is necessary to know the amount you will repay on a payday loan.

I don't think that the high APR is driven just by people being desperate. It's also due to the need to cover admin costs (and make a profit) on small loans, over a short period, to people with a fairly high risk of default.

And incapable, I think, implies a value judgment on people borrowing. I suspect that in the main the users are no more stupid or careless than the general population. They just have the misfortune of being poorer.

cornflakegirl Wed 27-Nov-13 22:59:02

Oh, and I agree with custardo - it would be brilliant if a way could be found to make credit unions more accessible.

pincasgft721 Sat 30-Nov-13 20:49:12

Message deleted by Mumsnet for breaking our Talk Guidelines. Replies may also be deleted.

ThisIsMyTime Sat 07-Dec-13 22:19:55

I'm in the shit with 3 of them after turning to them to cover sickness pay at work it's a vicious circle and I've contemplated ending it twice until I went to step change who will help me turn things around I'm so scared of bailiffs cuming to my door sad

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