Payday loans and their slickly produced adverts are fast becoming unavoidable, and despite the various opinions people have about them, they are certainly popular. The companies that provide these controversial short term loans say that they are providing a genuinely necessary service to those who would normally struggle with an unexpected expense, like an accident or repair cost etc. Critics insist though, that these companies specifically target and profit from people who have zero ability to pay back the loans they take out and that even worse, they rely on it. So which one is right, if anyone at all?
The Helpful Quick Fix Lender
The most well-known, and heavily advertised, payday loan company is Wonga.com. Over several years, they have managed to position themselves as the premiere payday loan company in the UK. At wonga.com, the look and feel is vastly different to a normal lending site. The emphasis is on fun, friendliness and seeming ‘nice’. If you think that they’re trying to pretend that they aren’t making money, they don’t! They have a very clear policy and outline all the charges that could be accrued from borrowing money from them. They also very clearly display their APR, which is 4214%, so they aren’t really hiding anything. They go to great lengths to explain that they are a responsible lender.
They insist that they don’t relentlessly chase people for money and that after a certain point, the interest that accrues on someone’s debt stops. They also insist that they do their best not to lend to someone who can’t afford to pay it back, and go to great lengths to check someone’s credit rating to ensure they have a good one. There is a definite demand for short term lending and access to credit. So where is the harm?
The Recession Vulture
The first problem is simple; not everyone is as transparent as Wonga. There are plenty of payday loans companies who are less clear about how charges accrue and more vociferous at chasing people for them. Secondly, the numbers don’t lie. The National Debtline received over 20,000 calls relating to debt problems from payday loans in 2012- up over 4000% from figures in 2007. Whether or not the intention is to target people on low incomes is academic- the fact is that more and more people are ending up in serious debt because of taking out several payday loans with no hope of being able to pay them back. Even worse, most payday loan companies insist upon setting up a continuous payment authority, meaning that they could take the money straight from your account, without having to re-ask for permission. There were even some scandalous occasions where banks refused to follow client requests to cancel the continuing payment authority!
The Result
We can go back and forth on whether payday lending is fair, but in a free market, it has the right to exist. There is action being taken, however. The FSA has insisted that payday lending practices will be much more tightly controlled and has given them an ultimatum to sort out their business practices. All we can hope for is that the industry embraces these changes and that finally payday borrowers can get a fair deal.
