Payday Loan thing?

[julian]

In the news lots at the moment - what I don't understand is:

Why can't these people take responsibility for themselves in taking a loan?

Taking a payday or any loan is not compulsory, you don't have to do it.

There's plenty of info on web about it, APR's etc - its all there to find - what do these people expect - someone's got to make some money out lending this dosh?


Is this just nanny state again?

 

[mat]

Desperation?

 

[DaveP]

I don't have solid statistics to hand but I can say with a degree of certainty that the majority of those who take out Payday loans and the like are those who suffer with some form of addiction. I say this from first hand experience these Payday loan companies are true vultures who prey on the weak and vulnerable minded and it's astonishingly easy to get them even if you have bad credit history.

 

[cc976a]

I do get a bit frustrated when I hear someone going on the news complaining about a problem or unfairness saying 'we need more education!!!' - when much of the information needed is out there, and really it is all down to responsibility.

Whether payday loans, cosmetic surgery, healthy eating, going to the toilet (ok made that one up) - but there is a time when people need to take responsibility and do their research of which there's enough out there......

.....but for Payday loans the issue is vulnerability and targeting those that are desperate in a nice fluffy positive way. Legally they have to show APR etc which flashes up quickly - but they are a business and until they are told they have to explain the pros and cons independently (which isn't going to happen) this is going to always be the case.

Bank accounts are just as bad with overdraft charges. I had a second bank account which I thought I'd cleared down. I left my iTunes account tied in to it though and each app purchase (of £0.69 and £0.99 etc...) were incurring £30 overdraft penalty fees.

In a month I had a statement showing I owed £250 'charges' for going overdrawn by little more than £8!

I managed, although they put up a fight, to get it refunded but others wouldn't be so lucky.

With banks treating people this way with highway robbery tactics on again the vulnerable it's no wonder people are turning to Payday loans.

 

[GreyWing]

The problem is that Payday loans are the last link in the chain before the crash so they get the blame. It used to be credit cards getting the blame, now they don't get the blame because of payday loans.

Payday loans are kicking the can down the road, they ain't the start or the cause of the problem. The problem is created much earlier up the chain when normal lenders lend too much to people who can't afford it.

I do think doorstep lenders have a lot to answer for, as they go into people's homes and do their stuff by rolling over loans and to some extent forcing loans on people. So I do think they are different. But people going looking as adults for payday loans should take responsibility.

If anyone here would lend £500 to someone they have never met, had a history of not paying money back and no security and if all goes well will get back £60 profit.... then they have more balls than me. Even though that is a repayment APR of about 2000%....

 

[Edwin]

I think the problem with payday loans as they stand isn't so much the massive interest rate they charge (though that's pretty eye-watering) but it's the fact that it gets compounded again and again if the loan isn't repaid. Sure, that's "maths" but it's also the case because there's no mechanism in place to stop the runaway train of ballooning interest payments.

Surely it wouldn't be beyond the realm of possibility to bring in a law that would "cap" the maximum annual interest levied on any loan at 100% of the loan itself, but allow that cap to be reached quickly.

In other words, if you lend £100 then the maximum interest you can levy in a year (on top of the loan itself) would be £100, but you could for example reach that £100 interest in the space of just 3 months (or whatever formula made sense) so you could still charge huge interest rates, just up to a limited point. After 1 month, you might owe £127, after 2 months you would owe £160 and £200 after 3+ months (I didn't actually do the compound math to work out the numbers, that's just roughly off the top of my head)

That way, it's still "punitive" to miss payments (encouraging repayment) but not insanely crazy.

If you're delinquent for 12+ months (and assuming all other recourse fails) then you can tack another £100 interest on.

Combine that with a secure, reliable mechanism for sharing the identities of borrowers* between all licensed payday lenders so that they can evaluate other extant loans and loan repayment histories in deciding whether to lend or not, and you start to have the semblence of a "safety net" for those in financial straits (far more expensive than banks, but far better than the wild west that exists at the moment) You could also make it illegal (through the shared database system) to lend to a borrower who's "hit their annual interest cap" at a different payday lender.
* e.g. a biometric database, with fingerprints and photo (since you can't rely on the availability of a passport or driver's licence)

If the argument against the above is "well, it's still too risky" then the loan model itself is broken. If you can't make a profit when you're allowed to charge the same again as the orginal loan every single year, then the borrowers are just too untrustworthy to receive ANY LOAN AT ALL.

 

[GreyWing]

Trouble with bringing in price caps is that it starts precedents and Governments don't want that. Then they come under pressure to cap energy prices, great I hear you say..... but then they mission creep and eventually it gets to domain names being resold for 300% reg prices etc.. They won't do it. They really are scared of starting that.

As for the rolling over, in reality it doesn't really happen that much. People without assets make arrangements and lenders do listen and are pragmatic. The old saying "blood out of a stone applies".

Those with security such as mortgages and other assets do feel the full force though and those can quickly get out of control. I think that accounts for about 8% of the market though as they often get loans elsewhere as they have security.

 

[scooter]

I do think doorstep lenders have a lot to answer for,

Not any more, Their rates are LOWER than payday loan co's.

I laughed when I read this headline:
Market trader who ran illegal debt racket from his fruit and veg stall is spared jail because interest rates were 100 times LOWER than payday lenders

Story





.

 

[Skinner]

Why work when you can run up debts while on benefits, live the life of reilly then go bankrupt and say my domain addiction made me do it and I didn't know about interest rates and then nom introduced .uk and killed my portfolio of trademarks and typos

*toodles off to post sold, sold and sold on every sales thread*.

 

[GreyWing]

Not any more, Their rates are LOWER than payday loan co's.

I laughed when I read this headline:
Market trader who ran illegal debt racket from his fruit and veg stall is spared jail because interest rates were 100 times LOWER than payday lenders

Story
.

The APR thing is a bit misleading, in fact very misleading. Payday loans are usually monthly at most, so the APR is not the accurate way of assessing things.

The doorstep thing is mostly different because it is very much into roll over tactics that Edwin refers to. Whereas payday loan companies roll over if you don't pay it off (maxium one month usually) and then lock the account before sedning it off to collections. Doorstep lenders agree new loans to pay off old loans and then keep doing that.

Doorstep lenders also sell loans, sell the idea / suggest it and often to people not in work. I usually find those needing payday loans actually need it for something and go to the sites without prompting.

 

[retired_member32]

The APR thing is a bit misleading, in fact very misleading. Payday loans are usually monthly at most, so the APR is not the accurate way of assessing things.

The doorstep thing is mostly different because it is very much into roll over tactics that Edwin refers to. Whereas payday loan companies roll over if you don't pay it off (maxium one month usually) and then lock the account before sedning it off to collections. Doorstep lenders agree new loans to pay off old loans and then keep doing that.

Doorstep lenders also sell loans, sell the idea / suggest it and often to people not in work. I usually find those needing payday loans actually need it for something and go to the sites without prompting.

actually there not for a month, they wouldn't hand out £60 a pop for affiliates if it was only for a month, there are ways and means of fudging the real extent of this problem and also very clever administration/accounting on behalf of payday loans company, the tricks they use to hide from the oft is amazing and very clever.

this will only rise because the lack of banks lending and the amount of money issued for benefits, sad state of affairs when you can get loans when claiming benefits but hay ho.

 

[GreyWing]

actually there not for a month, they wouldn't hand out £60 a pop for affiliates if it was only for a month, there are ways and means of fudging the real extent of this problem and also very clever administration/accounting on behalf of payday loans company, the tricks they use to hide from the oft is amazing and very clever.

this will only rise because the lack of banks lending and the amount of money issued for benefits, sad state of affairs when you can get loans when claiming benefits but hay ho.

If they are used correctly as per agreement they are for a month, the door step lenders are often 3-4 months. Do I think their (payday loans) business model wants everyone to pay back on time? Nope, I think they are happy when people default for a couple of months. In the end people just end up borrowing back their own money with zero risk to lenders.

The reasons they give affiliates £60 isn't so much that they will earn out of fines or rollovers (though you are right they do). It is mostly because they tell their customers they don't need to do a credit check in the future if they want more cash. So they know people won't shop around and will stick with them for more loans in the future, with zero commission for affiliates. I assume that they know people in this sector don't shop around and just happy to be accepted.

I agree mate, it is set to rise and rise. Although as for banks not lending, mmmmm, I'd have to say I have my suspicions that banks are the ones behind Payday lenders... Why lend at 15% when you can get them to lend at 2000%. I think if you dug into Wonga and Quick Quid etc, you'd eventually find banks.

 

[retired_member32]

Personally think it's like anything, smoking, drinking and chasing sheep around a field with your trousers around your ankles...it's bad for you but if you cut everything out of your life it's so boring, the OFT are flexing muscles...FSA was ditched because it cost every man, woman and child in the UK £1300 each for the bank collapses and if all these loans go bad they can say "told you so"...the Government should pick on corporate business that pay £2 in corporation tax each year.

 

[GreyWing]

I think it's easy to sit in an ivory tower and tar everyone with the same brush. Everyone who takes a payday loan isn't low life scum living on the dole. Many are people that work and find it difficult to make ends meet and people can tell me till they're blue in the face that payday loans aren't the problem it's the people taking them out but that's bullshit.

Payday lenders and affiliates profiting from it are pretty much as low as it gets in my book. I watched my 93 year grandma break down in tears because she hadn't eaten for three days and after pushing for info, it turns that Provident loans had let her take out loans in her name and when she was getting behind they suggested she use my dads and her other kids names to take out more!

After speaking to you a few weeks ago Sean, it was hearing the story of your Grand mother that did make me stop and think about the people that took out loans. After looking at it some more I changed my mind and did think that some lenders were to blame, but for me, doorstep lenders not payday loan lenders and I could see a difference. For me, dorrstep lenders are very proactive and selling loans which is wrong. Provident being one of the worst for it.

I don't think your Grandmother had a payday loan, I didn't check with the affiliates that we deal with and none would lend to anyone over 70 years old, none lend to anyone not in work. You need to input your employers details. I think your grandmother had a short term loan through a door step lender, but it was doubtful a payday loan. So I think it is unfair to blame them all the time.

Trouble is that the media just label things in keyword terms and right now payday loans get the blame. The payday loan model is simple, someone has a job, they borrow money and on their payday they pay it back. I honestly don't see how these companies get the blame when they have stuck to the agreement. If used per the agreement, they can save the borrower a lot of money.

The other point is that if borrowers paid the money back all the time, the costs would fall and more lenders would enter the market. Have a look for Welcome Loans, London Scottish Finance, Yes Loans... you won't find them. All high APR lenders that went out of business due to non repayments of loans. It happens a lot more than people know, but the media doesn't report that side of things.

 

[retired_member32]

Terrible news Sean, I have heard bad things about Provident, and I think the BBC did a undercover report on this Company..firstly they shouldn't be targeting the vunerable. I would contact the Citizens Advice about this they would point you in the right direction.

The Government will not be able to stop payday lending because banks are simply not lending, it does make you mad when you hear stories about this but the simple truth is whilst the banking sector is restricted from trading and heavy restrictions are in place Payday Lending will increase :twisted: another wonderful creation from the USA(payday loans), so the US Banks lend money to Sub-Prime markets in the US and take the UK Banks along for a ride, it all goes bang and we foot the bill, then to replace the banking sectors inability to issue money we turn to the USA again for Payday Loans....isn't that called ironic...on another note when BP drop oil onto the shores of the US we pay billions in fines, so when the Banks lend to the Sub-Prime market and take UK banks for a ride...do we issue fines to the USA

politics heh :twisted:

http://www.bbc.co.uk/programmes/b01n7m0q

I think it's easy to sit in an ivory tower and tar everyone with the same brush. Everyone who takes a payday loan isn't low life scum living on the dole. Many are people that work and find it difficult to make ends meet and people can tell me till they're blue in the face that payday loans aren't the problem it's the people taking them out but that's bullshit.

Payday lenders and affiliates profiting from it are pretty much as low as it gets in my book. I watched my 93 year grandma break down in tears because she hadn't eaten for three days and after pushing for info, it turns that Provident loans had let her take out loans in her name and when she was getting behind they suggested she use my dads and her other kids names to take out more!

I'm on my arse at the moment financially, luckily I own my own house and can sell a few names etc.. but it's giving me a taste of what life is like for those who are struggling financially and I'm glad of the experience.

Before you look down your nose at people, try showing a bit of empathy. Remember that there but for the grace of god ...

 

[anthony]

...The other point is that if borrowers paid the money back all the time, the costs would fall and more lenders would enter the market. Have a look for Welcome Loans, London Scottish Finance, Yes Loans... you won't find them. All high APR lenders that went out of business due to non repayments of loans. It happens a lot more than people know, but the media doesn't report that side of things.

With payday loans there is a 5.7% default rate within just 5 months of the first loan, I was reliably told. You have to appreciate that it is ONLY the payday loan sector that has such a high default rate over such a small timescale, therefore it's obvious that the model itself is at fault.

If you ever want an example of an unequal promotion of payday loans, see this link:

http://paydayloans.moneysupermarket...b243dc9bfa7e&gclid=CKyAn_mAxbcCFVMftAodHWwAsA

Notice the first on the list (Wonga) is illustrated with only a 2 week repayment level, whereas the others are basically 4 week repayments levels. Yes, the APR is shown, but vulnerable and uneducated buyers often just look at the cash figure. Shabby advertising I think anyone would agree.

Deliajen's points about a lack of normal lending by the banks is pretty much the main reason for the growth of payday loans, everyone in the industry, and government, knows it!

 

[GreyWing]

With payday loans there is a 5.7% default rate within just 5 months of the first loan, I was reliably told. You have to appreciate that it is ONLY the payday loan sector that has such a high default rate over such a small timescale, therefore it's obvious that the model itself is at fault.

I don't get it, why is the model at fault... by your own figures, 94.3% of people seem not to default.

With your link to the promotion, there is only a £3 difference if it was scaled up to the 30 days. However if you have a look at Wonga's ad, is says

"Additional Details: If your application is approved, the money can be transferred to your bank account in 15 minutes. Use discount code MSM55 to save £5.50 on your first loan."

So it is cheaper than the others on the face of it.

 

[springer]

As a debt adviser, I deal with payday loans all the time.

It is rare for my clients to have just one payday loan. They will often have 2-3 (the highest number so far has been 8 )

I am amazed at how easily they get them. They are often on a very low income or, even worse, on state benefits. They get caught in the payday loan trap and can't get out.

Besides the interest rates and rolling over issues, one of the biggest problems with payday loan companies is clearing out borrower's bank accounts by using continuous payment authorities.

Most of my clients with payday loan debts end up doing a debt relief order.

 

[GreyWing]

Thanks for this, it's interesting to hear from someone that sees the consequences of this reckless lending. To my mind, if people are so much a risk that you have to charge APR's that stretch into the 000's of percent then under no circumstance should they be lent to.

Here is where we see things differently mate, In my opinion I think it is more likely we seeing the results or reckless borrowing, not lending.

 

[GreyWing]

Graeme, you make a good chunk of money every month from these "reckless borrowers" so I guess you have to believe that to be the case.

As I said in my PM, I thought you were a socialist, a modern day Robin Hood standing up for what was right but given that you're actually a true capitalist, for me that casts a different shadow on your campaign against Lesley Cowley.

You are getting daft now Sean, time to attempt to play the man not the ball. Not that it bothers me in the slightest but why not continue to discuss the points of facts and not dogma? I do design finance sites yes, everyone knows that. That doesn't alter any of the beliefs I hold or have held for a long time. For you to suggest it, well it is what it is.

I'm sorry that you thought of me as Robin Hood, I have never done anything to encourage that. If you are suggesting that if someone takes a stand then you will then judge that "stand" on if they are a socialist or a capitalist, then I can't see any logical explanation for viewing life that way. Why don't you just judge the "stand" and put to one side their philosophies?

Now the fact I wouldn't accept the £30k pay from Nominet, socialist or capitalist?

You bought a domain and were asking £10,000+ for it, that's a 1666% price increase from when Nominet first sold it. You don't sound a like a socialist to me either. Why are you involved in this kind of markup? See it's not good when others start critiqueing your area either. Sure you could argue you didn't buy it at £6, you could then argue that any profit subsidises those domains you lose money on, you could also argue the money you had to spend to market it, maybe even design costs, sales commission, credit card fees mean that you only just break even. But do you know what, it doesn't matter because someone can spin it past the factual and onto a rant about inflated prices and they'll just keep going on about your 1666% mark up regardless of what you tell them.

So let's just let individuals make up their own minds about stuff, buyers and sellers and the rest keep out of other people's business.

I'm not capitalist or socialist, I am very pro individual choice and treating people adults like adults. Treating people as adults comes with negative consequences and rewards, that's the joys of life. I don't like people like yourself, unelected judging others and telling them how to run their lives, you can have a loan, you can't, what price they can and can't pay.

What I am in favour of is competition and people like yourself starting your own payday loan company, putting your own money where your mouths are and lending out at 30% APR..... That's what I want to see! Then as you make a fantastic success out of it, I'll absolutely listen to every bit of advice you have around lending.