Payday loans etc.

[Extrospektiv]

In the past 5 years I have noticed more and more shops opening up as pawnbrokers/ cash converters style places and offering "payday loans". Now they even advertise on telly,like there's no shame in lending at ridiculous interest rates anymore.

Also the shops where you can buy furniture, tv's, washing machines and the like on "pay weekly". like if you had the cash you'd pay £10 for petrol to drive/ train ticket to a big shopping area and £120 for a particular tv... and these places are bringing in people on (already stupidly low benefits, thank you Bullingdon Cameron & Osborne) or who are working at less than 2/3 of a living wage, who don't have the £10 let alone the £120- and tempting them with just £3 a week!

Sounds good, you're sitting on the 17th floor of a block in east london. Redundant through no fault of your own. Going 2 hours across the city on foot to look for a new job because your benefits won't stretch to the "luxury" of a bus ticket, only to be told it's already taken and expected to go with nothing, and then you go home to a box with bare walls and a window where you can see coppers chasing old men with the 3-litre ciders outside. Actually having a TV isn't the evil thing that Daily Fail think, is it?

So you pay £3 a week. For 3 years. Which is... £468 for a telly worth £120. That's an example I made up but the percentages are pretty realistic.

Why doesn't the government just cap the prices and interest rates ALL these places charge? They're nothing more than glorified loan sharks. Closing them completely would leave people with nothing if they couldn't afford, but instead of charging businesses heavy redistributive taxation, why doesn't the government just stop them from making the exploitative profit from the poorest quarter of society in the first place? It seems to make sense and save time.

I know these tory boys wouldn't do it but Miliband should if he gets in. What do you think?

(And any benefit-bashers who say "it's their own fault", try living on it for a year with no support. I've never had to so if I can empathise you should be able to. "welfare-dependency" is a right wing fanatic catchphrase which does not describe ANY of the people I've known on it. and if you want to stop people stealing from the government go after the 7-8 figure tax fraudsters.)

[CogitoErgoSometimes]

I don't think there should be adverts on TV or high pressure selling for these products but I don't think they are evil in and of themselves. Most of the time the amount borrowed is relatively small and paid back fairly quickly so, despite the massive APRs, the total cost of the loan isn't excessive. Lending money to people with no money is a risky business and we're all still paying the price of the credit crunch. But, if these products didn't exist at all, someone on low income or benefits, or someone without a bank account or with a poor credit record wouldn't be able to borrow money at all. At least the terms are stated up front and the companies are regulated by the FSA. If pay-day loans were banned (and capping the interest rate would probably make the business model unworkable) I don't think that would help anyone except possibly the old-style door-to-door loan sharks and organised criminals.

[adeucalione]

If the government capped the prices and interest rates that these places charge then, given the unusually high default rate, they would cease to make a profit and disappear.

Personally I wouldn't be sad to see them go, and find it distasteful that they profit from financial hardship, but where would their customers go then, as they have presumably exhausted all other avenues to be using them in the first place?

Maybe the answer is in educating people about the bonkers rates of interest, so that they can avoid them or at least make a fully informed decision.

[LadySybildeChocolate]

People do need educating, there are alternative, such as credit unions. Places like this feed off poverty and low wages. The government have been asked by various charities for a cap on interest rates for years, yet they do nothing.

[CogitoErgoSometimes]

Isn't 'people need educating' the equivalent of saying that the poor are also a bit thick?

[LadySybildeChocolate]

No. Finances are complicated. My mother doesn't get APRs etc.

[Missmuffet28]

Personally I think these companies should be hung drawn and quartered if people are that desperate their bank should be made to help them in a way that doesn't rip them off

My dp fell into a rut with these in oct 2011 in the end he was juggling 4 loans rotating the company every few weeks to pay off what he had borrowed from the last and the final loan he took out was £800
It has ruined us and our finances lucky for him I love him dearly and after finding out about his little secret helped him through it his last payment of £140 is next month exactly a year on! how he slept at night I'll never know!! I just think they take advantage of what is already obviously a crappy situation, it's almost like legalised loan sharks in my opinion

[SaskiaRembrandtWasFramed]

Yes, I think there should be caps on what they can charge, and also a massive expansion of credit unions - that way poor people could still have loans, just not at exorbitant rates that leave them worse off than they already were.

[Saltycopporn]

Anyone with a good calculator should work out the apr of going into an unauthorised overdraft with thd bank. Based on being 5 pounds overdrawn the equivalent for Lloyds is 7,500,000,000,000,000,000,000,000,000,000,000,000,000,000,000,000,000,000,000,000,000,000,000,000,000,000,000,000,000,000,000,000,000,000, 000,000,000% APR. No wonder people choose the sharks

[Extrospektiv]

adeuicalione I had considered that people may be left with no legal options at all if they were price restricted to the point of collapse and end up with using loan sharks, theft-related crime, sex work, selling on prescription meds, benefit fraud or one of the other not so legal ways that the desperate come up with money. Which is exactly why I didn't suggest banning the places although they are very distasteful to me.

I just advocated for caps on prices/interest rates, so at (eg) Perfect Home nothing could cost more than xxx% of the RRP for buying it outright, and a 7-day cash advance service could not add more than £xx interest per £100. Then they would remain profitable and in business without taking so much money unfairly away from the poor.

I'm encouraged to see the support for this. :)

[CogitoErgoSometimes]

I can't support it because I don't know at what level these kinds of business remain profitable. As mentioned earlier, they must get a high level of non-payers given that they are making unsecured loans to people with bad credit and/or low incomes. So the cost of all the bad debts and skipped payments has to be factored into the prices charged to everyone else. If they can't cover the bad debts there's no point offering the service and I suspect that the APR would still be pretty high compared to other high street lenders, even if they only worked on breaking even.

[adeucalione]

The only study I could find online was this one from FDIC Centre for Financial Research, looking at payday loans in the US 2005-9. It seems to find that charges are not as extortionate as we might think, given the rate of default losses.

[adeucalione]

missmuffett28 - I can't agree that banks should be made to help people with poor credit histories; irresponsible lending to people who couldn't make their payments caused a lot of trouble for the banks recently

[MrJudgeyPants]

It doesn't help that these payday loan companies have to use the APR system which makes it look like a massive rip off when in reality it isn't.

Let's say you want to borrow £100 for a week. The terms of the deal say that I give you £100 today and in a week?s time you pay me back £110. Every week you fail to pay me back I will charge you another £10 plus maybe another 10% interest. I don't think that is particularly extortionate when considering a fairly high level of default.

In this scenario, most people will repay on time and think it?s pretty fair. The problem comes when you work out the APR which says that taken over a year I will charge you £520 on top of that £100 initial loan plus interest. No one in their right mind would let the situation get that far but if they did the APR would be around 650%

On the other hand, anyone buying electrical goods from the likes of Brightstar is a muppet, but then again, it isn?t like those sorts of places sell the necessities of life when affordable, good quality second hand stuff is readily available at a much lower price?

[Missmuffet28]

Dp borrowed £800 from one of these companies they advertise on the tv also on a popular channel he had an agreement to pay back over 12 months which may yes be longer than the average payday loan agreement but he's paying back £1680! In my opinion that's a massive rip off, at the time I'd have liked to have shot him believe me and he's lucky he hasn't defaulted on a single payment as it gets more expensive again I just think if he'd gone to the bank waving his white flag and said yep I fucked up they should have helped him but no bury head in sand seemed a safer option an the loan people are so friendly on the phone...... Well of course they are they are sitting smugly behind their telephone knowing you have money issues and that this could possibly fuck you up even more, this is just my opinion however that it didn't work for him us I'm sure there are people out there it has worked for.
With regards to places like bright house i agree mrjudgey you gotta be a muppet to buy from there in that case I'd advise a friend or whatever to put back the same or a little more each week and they would be surprised how quickly they could afford the same item/better item/more items
just seems so wrong that companies can take advantage of people misfortunes :(

[CogitoErgoSometimes]

In fairness to the loan company, your DP called them, not the other way around. He would have been told that it was 12 monthly payments of £140 which isn't too difficult to work out that's an expensive way to borrow £800, and there would have been a cooling off period when he could have cancelled the deal. They did not therefore help him bury his head in the sand, he chose to do that for himself. They did not force him to be secretive about it either. He he had consulted you first before committing the family to a big debt, you'd have told him it was a bad idea. If he takes out loans in secret that's a relationship problem more than a financial one.

[Extrospektiv]

missmuffet- I wouldn't want to comment on your relationship with your DP but as far as your hypothetical Brighthouse friend, not everyone can afford to "put money back every week". Which is why they are being exploited, and so I suggest cutting prices so that people who need to buy things weekly or monthly through sheer lack of cash can do so without having to pay so much more than the price of the same item at a normal shop.

[Missmuffet28]

If they can't afford to put a little money back each week then why are they buying from bright whatever it is as effectively that's what they are doing except they end up paying way over the odds for something, you don't need to buy TVs playstations and crap like that which is the sort of stuff you would get from there weekly or monthly but i do totally agree that stuff like groceries etc should be more affordable

I appreciate my dp was the one that rang the loan company I'm not debating that I was just giving my example of why I think they are shit neither did I ask for opinions on my relationship thankyou :)

[LadySybildeChocolate]

A lot of people are unable to find hundreds of pounds in one go. What are they to do if their cooker breaks down, or their fridge stops working? I know that it is possible to survive without these, it's bloomin hard though. It'll get worse now that they are getting rid of crisis loans.

[Extrospektiv]

Lady you seem to be blaming the people for using them, I'm not, nor am I saying they should not exist- I am advocating a reduction in the maximum mark-up over RRP for a one-off sale of the item.

[LadySybildeChocolate]

No, not at all. There needs to be more regulation as to the charges as they are exploiting those who have little alternative but to use them.

[Extrospektiv]

I'm with you then. After an ultra-polarised PM discussion and yet another round of the abortion debate, good to see something to agree on! :)

[LadySybildeChocolate]

I have a friend who used to work in one of these shops, all they want is money. They are the same as the doorstep lenders; once something is almost paid off, they encourage customers to get something else. If a customer is late paying, even if they have almost paid the whole amount off (including interest), they will take the item. Imagine what it's like to lose all of your belongings and have to start again? What if you're on a low income? By abolishing crisis loans more and more vulnerable people will turn to places like this.

You should avoid the abortion threads, they always end up the same; ignoring the OP and their problem and having an argument instead.

[Extrospektiv]

I won't bother posting on abortion again on MN.

I have my position, the majority have a different position, and nothing could change my mind (I even made it clear I'd take being executed over renouncing my views!) so there is just no point.

[CogitoErgoSometimes]

"neither did I ask for opinions on my relationship thankyou "

You were blaming the loan company for twisting his arm and helping him bury his head in the sand. The decision-making process is far more complicated. Yes, if someone's washing machine breaks down and they haven't got a few hundred in the bank or a credit card handy to buy a new one they might feel they have few other options than a loan that's going to cost a lot of money. But equally there are people like your DH who have other options and, if they'd taken the time to consult the family or even shop around, might not get stitched up.

[Missmuffet28]

Yes you are absolutely right it's all his fault, what was I thinking!