A report from the Institute for Public Policy Research (IPPR) said the UK’s credit unions should be expanded as a major source of affordable ethical lending; and the expansion should be financed by a levy on the consumer credit industry. The report received wide support from religious leaders. Continue reading
The letters threatened legal action, but the law firms were false. In some cases Wonga added fees for the letters to customers’ accounts, according to the BBC.
The customers affected (45,000 of them) will each receive £50 for distress (a piddling amount, surely?) plus any legal fees they have encountered. The regulator in this case is the Financial Conduct Authority (FCA); they cannot however fine Wonga because the offences happened before they started regulating payday loans companies.
Richard Lloyd, executive director of consumer group Which?, said: “It is right the FCA is taking a tougher line on irresponsible lending and it does not get much more irresponsible than this.
“It is a shocking new low for the payday industry that is already dogged by bad practice and Wonga deserves to have the book thrown at it.”
Tougher line? £50 each? I imagine the people at Wonga are laughing.
Wonga is not the only lender to do this. Back in my debt-crisis days, I received a letter from a non-existent firm of solicitors. I was only alerted to the fact when I noticed that the initials of the firm were identical to those of the bank that was chasing me for the debt. It’s sharp practice and could cause considerable distress, because most people have a healthy respect for the law. And that’s how it should be. So to use that fact in this way is pretty despicable. £50 each, eh?
There is an existing Code of Practice from the Office of Fair Trading (OFT) regarding harassment of debtors, although it is often ignored. I’ve blogged about it more than once; for details click HERE.
WANT TO KNOW MORE?
For the BBC News item, click HERE.
For the OFT Code of Practice regarding harassment of debtors, click HERE.
Payday lender Wonga has increased its APR by 1600%! It was already eye-wateringly high; it’s now 5853%, according to The Guardian.
That’s prompted lots of media attention and calls for increased regulation. No surprise there.
Simon Read has campaigned extensively on this. In his recent piece in The Independent , he says we don’t need to ban payday loans, just ensure that anyone taking one out should have chosen to do so, rather than “being flogged a deal they can’t afford.”
How do we ensure that? Anyone contemplating such a risky step should get good and impartial advice about their options; and should take a little time before deciding, instead of being rushed into a decision. However, these loans are by definition emergency loans: the borrower either has, or thinks they have, no alternative and no time.
I would never recommend payday loans; but banning them or capping rates would remove, or at least limit, a finance source that for some borrowers and some situations might be the only alternative. More and better advice is probably the answer.
DO YOU WANT TO KNOW MORE?
See some of my previous blog posts on this thorny subject:
I appear to be stalking Simon Read of The Independent. If so, that’s because payday loans are again in the news and this is a story and a cause he has taken up and because he writes well on the subject.
The latest twist in the story: research by Shelter (a UK housing charity) reveals around seven million people are turning to credit to try to keep a roof over their heads.
A million use payday loans to cover rent or mortgage
In the past year alone, almost one in seven of those – i.e. just under one million people – have resorted to payday (i.e. emergency) loans to cover rent or mortgage payments.
The Independent has warned that payday lenders are cashing in on the struggles of millions who are unable to borrow from mainstream lenders and those companies charge interest rates of up to 5,000 per cent.
The impressive Campbell Robb, CEO of Shelter, said that this “… shows the extent to which millions of households across the country are desperately struggling to keep their home.
“Turning to short-term payday loans to help pay for the cost of housing is totally unsustainable. It can quickly lead to debts snowballing out of control and to eviction or repossession and ultimately homelessness.”
What’s the alternative?
I cannot disagree with anything that’s been said above. It’s a sad state of affairs and I’ve no doubt payday loan companies in general are cashing in on the misery, despite what was said by the boss of Wonga to Simon Read and which I reported in an earlier post. There have been calls for these firms to be outlawed. But for the people who feel they have no alternative, what will they do if that happens?
Anyone in debt crisis who consults an adviser at one of the debt charities – such Citizens Advice or National Debtline or CCCS, here in the UK – would probably be told to avoid payday loans. But I wonder how many of the million people mentioned in Shelter’s report have actually talked to such an adviser.
I know that these resources are stretched; and as the charities reply to some extent on grants from the public sector, they may well become even more stretched because of spending cutbacks.
Need for financial advice
I don’t know the full answer – and of course it’ll be different in every case – but wider access to free, impartial and high-quality financial advice must be part of it. What’s more, financial education has to have a higher priority than it does now.
WANT TO KNOW MORE?
For the Simon Read article (4 Jan) click here:
For information about my book “Back to the Black”, click here:
“It’s not just the weak that can end up in a debt spiral”, wrote Simon Read of The Independent (London) a couple of weeks ago. I was reassured to read that, because I had ended up in that very spiral in the late 90s and I didn’t want to think that I had been weak. Oh no, not me.
The article was topical. Payday loans had hit the headlines again when R3, the professional association that represents insolvency practitioners, warned that up to 3.5 million people in Britain are expected to take out a short-term loan to tide them over in the coming six months.
First, the good news …
Simon Read says of the loans: “if you need emergency cash and know you can pay it back within a few days, then paying £20-£30 for the privilege doesn’t seem too bad, especially bearing in mind how much the charges and interest can add up to if you go into the red at a bank.”
Then the bad news …
But as Read says, and I have written in these pages before, the obvious problem is that if you don’t repay the loan quickly then it mounts up: it spirals, in fact. What’s more, you could end up paying bank charges and interest anyway, as well as the interest to the loan company.
Wonga boss explains
The most interesting part of the piece was this. Because of the negative publicity, Wonga’s boss Errol Damelin got in touch with the Indy to offer a defence of his business methods. He said: “If things go wrong we charge a one-off default fee of £20 and then stop any further interest at a maximum of 60 days.”
That sounds fair and it’s the kind of responsible business practice that Simon Read, and in fact all of us, would like to see, though I’d like to know how Wonga defines “when things go wrong”, i.e. when does this kind of “interest cap” kick in?
The Independent would like to hear from anyone who’s had experiences (good or bad, I trust) with Wonga or other payday lenders who claim to operate fairly.
Author’s payday loan spiral
The article concluded by recommending a book by Steve Perry, entitled When Payday Loans Go Wrong. It describes the author’s “descent into debt hell”, which started innocently enough with a £250 loan for a weekend away but ended 18 months later with 64 loans from 12 different companies totalling £15,000.
My own debt experience was not caused by payday loans … but the result was similar. My business started to go wrong, so I started funding it with personal credit cards. I ended up owing a total of £65,000 to 23 separate creditors and narrowly avoided bankruptcy. Different cause but the same spiral, which I described in my book “Back to the Black.”
WANT TO KNOW MORE?
For the full Simon Read article click here: http://www.independent.co.uk/money/spend-save/simon-read-its-not-just-the-weak-that-can-end-up-in-a-debt-spiral-6275149.html
For information about Steve Perry’s book “When Payday Loans Go Wrong”, click here: www.saynotopaydayloans.co.uk
For information about my book “Back to the Black”, click here: http://michaelmacmahon.com/books/back-to-the-black-how-to-become-debt-free-and-stay-that-way/