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

[KatieMumsnet]

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?

[MoreBeta]

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.

[Tee2072]

I would agree with that as well MB.

[BillyBanter]

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]

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]

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]

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]

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.

[alittlebitcountry]

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]

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]

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]

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]

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]

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]

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]

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]

Ban them.

[Terrortree]

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]

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]

Right wingers in this country that is.

[Terrortree]

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]

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]

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]

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

[pumpkinsweetie]

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%

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.