Payday loans etc.

(51 Posts)
Extrospektiv Fri 21-Sep-12 12:02:28

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 Fri 21-Sep-12 13:13:25

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 Fri 21-Sep-12 13:37:20

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 Fri 21-Sep-12 13:41:18

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 Fri 21-Sep-12 13:47:36

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

LadySybildeChocolate Fri 21-Sep-12 13:48:38

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

Missmuffet28 Fri 21-Sep-12 13:56:58

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 Fri 21-Sep-12 14:01:39

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 Fri 21-Sep-12 14:06:22

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 sad

Extrospektiv Fri 21-Sep-12 15:18:38

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. smile

CogitoErgoSometimes Fri 21-Sep-12 17:28:44

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 Fri 21-Sep-12 18:25:01

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 Fri 21-Sep-12 18:28:08

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 grin

MrJudgeyPants Sat 22-Sep-12 01:17:33

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 Sat 22-Sep-12 09:44:50

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 sad

CogitoErgoSometimes Sat 22-Sep-12 11:50:07

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 Sat 22-Sep-12 13:44:50

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 Sat 22-Sep-12 17:45:29

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 smile

LadySybildeChocolate Sat 22-Sep-12 17:47:45

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 Sun 23-Sep-12 00:57:40

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 Sun 23-Sep-12 01:09:27

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 Sun 23-Sep-12 01:12:24

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! smile

LadySybildeChocolate Sun 23-Sep-12 01:18:31

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 Sun 23-Sep-12 01:37:36

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 Sun 23-Sep-12 09:57:01

"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 Sun 23-Sep-12 13:43:39

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

CogitoErgoSometimes Wed 26-Sep-12 08:46:13

Maybe, in your case, it is. I used to be married to a spendthrift that could run up debts like there was no tomorrow. This was way before the days of easy credit and payday loans. It's tempting to blame the bank.

CherryBlossom27 Wed 26-Sep-12 08:55:22

I read the other day that one of the owners of Wonga is a Conservative Party doner so it's unlikely this govt will do anything about these type of companies. Personally I agree there should be a cap on interest rates, 4000% with a payday lender as opposed to 19% for an overdraft with a high street bank is appalling and I don't see how it is legal or justified.

niceguy2 Wed 26-Sep-12 10:56:00

I think the headline figure of 4000% whilst technically correct is very misleading when it comes to how these companies work.

Your payday loan companies specialise in short term loans. Typically up to a month. APR is calculated annually so it's not a very good measure.

Plus bear in mind that if you are borrowing £200 for a month, there is the Interest but the company has to also factor in the business costs.

So typically a charge of £50 may seem hefty on a £200 loan for a month. But then who is going to lend £200 to a person with poor credit history for say a fiver? It's simply not worth the time, effort of risk.

Plus bear in mind that someone has to be paid to fill in the forms, process it, get the money to/from the bank. Collect the money afterwards. Chase people if they fail to pay up. Not to mention all the other business costs.

I do think we need to tighten up the rules on these companies and their rapid growth does concern me. But at the same time if we force them to all shut up shop then surely less legit loan sharks will simply replace them.

flatpackhamster Wed 26-Sep-12 17:42:02

CherryBlossom27

I read the other day that one of the owners of Wonga is a Conservative Party doner so it's unlikely this govt will do anything about these type of companies.

You didn't read that at all.

What you read was that a venture capitalist, Adrian Beecroft, who put money in to Wonga.Com, is a donor to the Conservative party.

Wonga.Com being set up under the previous government, and not being closed down by them either, suggests to me that your conclusions are unreasonable.

Personally I agree there should be a cap on interest rates, 4000% with a payday lender as opposed to 19% for an overdraft with a high street bank is appalling and I don't see how it is legal or justified.

The reasoning - unpleasant though it is - has been laid out very clearly in this thread. The cost of credit has to reflect the risk.

If you cap the interest rate, then payday loans companies won't offer that product and the people who want to borrow will go to loan sharks instead of businesses regulated by the FSA. I don't think that's a better outcome.

CherryBlossom27 Thu 27-Sep-12 11:06:14

Thank you for correcting me flatpackhamster. Out of interest are you happy with the current set up, if not, what would you change to improve it?

flatpackhamster Thu 27-Sep-12 11:14:53

CherryBlossom27

Thank you for correcting me flatpackhamster. Out of interest are you happy with the current set up, if not, what would you change to improve it?

I can't say that I know a huge amount about the current set-up, but I probably know more than the politicians and do-gooders who are gnashing their teeth.

Look, when you're skint you've got two choices. You go to a company like this, or you go to a loan shark. So long as these companies operate within the law, and so long as someone who feels unfairly dealt with can take their case to the FSA, I don't have a problem with them.

I don't like them, but I think that capping interest rates is going to push more people away from them and in to the arms of loan sharks.

CommunistMoon Thu 27-Sep-12 21:33:14

I don't buy the argument about loan sharks. Where's the evidence?

CogitoErgoSometimes Fri 28-Sep-12 07:06:52

The evidence is there from past decades. It's also common sense. When you've got desperate people with no access to regular banking needing a hundred or two to tide them over, that's always been an opportunity for local loan sharks who are unregulated can charge what they like. I used to know a pub landlord in Port Glasgow who operated his own system. Would lend his regulars cash for the weekend and they'd pay him back with interest when they got their Giro money the following week. As most of the money got spent in his pub he did quite well out of it. No idea what his APR was... smile

CommunistMoon Fri 28-Sep-12 21:56:59

The evidence I see every day is that people who have never previously resorted to loan sharks or even doorstep lenders like Provident are taking out payday loans to tide them over, can't afford to repay in full, roll them over and they swiftly spiral out of control. People on low to middle incomes whose pay has been frozen or cut, struggling with escalating food prices and utility bills - people who would no more borrow cash off some bloke on their doorstep than they would buy street drugs. Payday loans are heavily advertised and the lenders push them as mainstream, accessible financial products, so quick and easy to sort out online with the attendant reassuring feeling of privacy and anonymity. Those who were previously using loan sharks are still using them and very often they are now using payday loans, cheque cashing shops and pawnbrokers as well.

The payday lenders are predatory scum whose business model is predicated on making profits out of unmanageable debt. They left the US market and came over here because American state legislatures eventually found the balls to cap their interest rates. Maybe the next US govt will welcome them back with open arms because the poorest two-fifths are all getting kneecapped by loan sharks, I suppose we will have to wait and see.

adeucalione Sat 29-Sep-12 22:59:47

Interest rates are capped in some states but the majority of payday lenders in the US got around this by basing their HQ in a state where interest rates were not restricted, which allowed them to apply unfettered interest rates to loans issued at any branch. They also began to impose very high 'admin fees'.

An outright ban in Georgia did indeed push vulnerable people towards unregulated and unorthodox lenders.

On balance I think it's a shame that the bill to limit interest rates was not passed in May, whilst recognising that this measure alone would not be sufficient to protect people and may indeed have unintended consequences.

CommunistMoon Sat 29-Sep-12 23:29:55

Thanks adeucalione, that is interesting. I do agree that capping rates is not sufficient in itself, nor is improving access to affordable credit through banks and credit unions, but both would be improvements on the current position. The big underlying issues are all to do with underemployment, inadequate wages and rapid rises in the cost of living. As someone who works in the debt advice sector, I still maintain that payday lenders are making bad situations worse for too many vulnerable people far too much of the time.

SunWukong Mon 01-Oct-12 10:54:27

Credit unions are not an answer you need to join one of them with id the same way as bank, the majority of people using payday and pawn brokers, need money fast for a couple of weeks to pay the rent or a bill.

They know the interest is high tho few understand how high and many don't even read the small print on the pledges but they think they are going to be ok, they will pay it off next week when they get paid.

The real problem is this country is unaffordable for it's own people.

losingtrust Wed 03-Oct-12 12:33:16

The Halifax charge £5 per day if you go overdrawn. How is this any better? Most of these companies just write off loans that people do not pay back and will never off a loan to that person again.

losingtrust Wed 03-Oct-12 12:38:01

Sorry £1-2 per day if you go over. On a £10 overdraft that is high APR.

CommunistMoon Thu 04-Oct-12 09:27:37

losingtrust they may write them off their balance sheet, but that means selling the debt on to someone else to collect. Sure, a lot of debts ultimately go unpaid but the payday lenders aren't suffering thereby.

Tcivi Thu 22-Nov-12 22:29:42

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annasmith25 Wed 06-Feb-13 06:16:53

Lots of people say you need to avoid payday cash advances because they have a ton of hidden charges. This may not be more wrong though. Personal loan companies always make sure all their fees are very clear. If they do not, they might be in trouble legally. You can get a cash advance and feel secure knowing that you know all the rules. Get more information at: <a title="Feeling good about a payday loan" href="https://personalmoneynetwork.com/payday-loans/">Payday Loan</a>

JakeBullet Wed 06-Feb-13 06:36:50

I had a loan from Provident four years ago when my marriage broke down, I moved into a rented house which was unfurnished and I literally had nothing to furnish it with. The £500 got me a secondhand cooker, sofa, beds and a fridge. I got a portable TV from Freecycle.

Provident sent me a letter setting out my repayment and the final (with interest) amount I would pay back. The £500 loan cost me £954 to repay which was massive. At the time though my exH had been defaulting on payments for months without my knowledge so my credit history was shot to pieces. At the time I was working and could easily afford the repayments. My neighbour uses Provident too but is on benefits....they come round the weeks her money goes in so she always repays them on time.

David Cameron is good mates with the chap who owns wonga.com so I can't see him doing much to stop these companies.

ttosca Thu 07-Feb-13 17:08:01

You could very easily put a cap on the interest rates and still have companies making a profit.

The idea that using APR is misleading is misleading. It's true that these are supposed to be short-term loans, but the fact is that some people do miss payments and are unable to pay the amount back in time. This leads of further debts, which are also unpayable, and so a vicious circle is created.

One could put in legislation that not more than 200% of the original loan can be collected, but the truth is, it's about political will, not doing what is best for the public.

kimorama Wed 27-Feb-13 11:03:30

Rip off pay day loans are illegal in most european countries. Our governemnt backs the worse part of the rat race.

HillBilly76 Fri 08-Mar-13 17:13:06

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ttosca Fri 08-Mar-13 18:19:41

In many other countries, 'pay day loans' are better regulated and there are caps.

Furthermore, I would agree that demand is a problem. But this government is doing everything it can to make people's financial existence more, not less, precarious. They are attacking social security and welfare, thereby increasing demand.

In countries where you have more of a safety net, people are less inclined to take outrageous loans. Obviously, nobody wants to take out a loan at %10000 or whatever unless they have no other choice.

HillBilly76 Sat 09-Mar-13 22:30:59

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LadyMaryQuiteContrary Sat 09-Mar-13 22:45:46

I must live in a low income area as I've had 2 letters from one of these legal loan sharks through my door offering me money since Christmas. I'm not impressed. They shouldn't target people this way. I don't have major debt, nor do I borrow. I tore the first one up, the next will be returned with a 'not interested' scribbled all over it.

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