Money Insider: Less talk on payday loans, please. We need action
Friday 05 July 2013
Payday lending returned on Monday to a place with which it has become very familiar: under the microscope – this time at a London summit.
The meeting was attended by debt charities, consumer groups and officials from the financial regulator, and some of the lenders themselves.
Despite a growing wave of criticism over the last few years from the media, MPs and consumer champions, the misery inflicted by payday loan providers has continued to escalate.
Recent figures released by National Debtline highlight the seriousness of the problem. They reveal that the charity handled 3,300 calls for help in 2010, 10,300 in 2011 and more than 20,000 in 2012.
And it is a trend that continues to become more pronounced, with almost 7,000 calls handled in the first three months of 2013. It was important, therefore, that Monday's summit was not just another lot of hot air.
One of the proposals put on the table was to ban television advertisements for payday loans during the daytime, with the regulator stating that it could even take this a step further and ban high-cost loan advertising on TV altogether.
While this would be a big step, many lenders have harnessed the power of the internet as their main sales channel, so while a television ban would be a start, what about online and newspaper advertising and the emblazoning of lenders' names across the shirts of football teams?
With speed of credit being one of the major selling points for these loan companies, it was encouraging to hear that this was also an area under scrutiny, with the possible introduction of a time delay.
At the moment, the fact that you can have the money in your bank account within 15 minutes of applying means that, in some cases, inadequate affordability checks are being carried out before the loan is agreed – something else that needs much closer attention. Not carrying out a thorough evaluation of the ability of the borrower to pay the debt back can actually play into the hands of payday companies because if the customer can't make the payment after 30 days, then the loan will be rolled over for a further period and will involve additional fees and interest.
So while it may only take 15 minutes to get yourself a payday loan, you could find it taking you months or years to repay what is advertised as short-term finance.
A further issue on the table at the summit was the ability of fborrowers to amass debts by taking out loans with numerous payday providers. The suggestion is that a central register could be established as a means of managing this problem. Let's just hope it will not take years to pull together.
I appreciate that there need to be alternative borrowing options for customers with a poor credit history, so it is essential that the Government does more to promote alternatives, including the vast network of credit unions across the country.
As well as credit unions, there are plenty of other sources of finance out there for customers who need to borrow money but are excluded by the mainstream lenders.
Borrowers with imperfect credit histories have access to specialist credit cards from the likes of Vanquis, Luma and Aqua. These charge far less than the horrendous four-figure APRs levied by payday loan providers. Similarly, there are options to borrow money in your own name if you have a creditworthy friend or relative willing to stand as guarantor for your loan. One of the better-known providers of this type of service is Amigo Loans, where you can borrow from £500 to £5,000 at an APR of 49.9 per cent.
For all the promising ideas and encouraging words that will have been voiced this week, National Debtline is dealing with 100 new payday loan related debt issues every day. It's now time for less talk and more action.
Andrew Hagger is an independent personal finance analyst from moneycomms.co.uk
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