Payday loans are in the news again. In just the last week I’ve seen headlines like these in the press and the BBC:

“Payday lenders face accusations of illegal activity”

“Payday loan firms face threat of instant closure.”

These firms get bad press and in many cases that’s deserved. When the loans “roll over”, the companies make obscene amounts of money, with massive interest rates; and their customers end up in a vicious circle of ever-increasing debt.

After much criticism for inaction, the OFT (Office of Fair Trading) here in the UK has taken 12 months doing a study and has given the firms 12 weeks to clean up their act. Those that don’t could be “shut down immediately”, we read.

Two questions:

  • If it took the OFT 12 months simply to find out what was happening (most personal finance commentators knew already), how realistic is it to expect all these companies to change their practices (and to prove they’ve done so) within 12 weeks?
  • If firms are closed down, what happens to borrowers who rely on them and can’t get loans from anywhere else? Even viable businesses have a hard time getting funding from banks; what chance have individuals with poor credit history?

According to the companies, 80% of the loans are in fact repaid by the following payday. If that’s true, then for those borrowers it was an affordable solution, maybe their only solution.

So I still say “yes and no” on the fast shutdown plan.

Or, as today is Red Nose Day here in the UK, I should quote Vicky Pollard: “yeah but no but yeah but  …”



Have you used a payday loan company? How did it work out for you?

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