Just listening to the story of a student - a teenager, who has since taken a part-time job - who has borrowed £400 from Wonga, has paid back £1,300 and still owes £1,500.
I cannot see any reason why these "pay-day loan" companies should be allowed to stay in business without a massive change in the law preventing them from charging more than about 20% APR. At the very least, they should be prevented from making a profit from customers who fail to pay - that way they will only lend to people who can afford it.
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Cynical exploitation of the financially vulnerable leaves a very nasty taste.
Commercially there is an argument that borrowers or would be borrowers should read the terms and conditions.
I hate these companies with a passion but money is the name of the game in this world.
If they lied to get money they couldnt afford to pay back then tough shit really.
bbc.co.uk/news/business-29457044
No fact finds. They prey on those with bad credit history and who will also more than likely fail any affordability test.
It's easy to say for some to say "I can afford three quid a day, it's only a pint after all" but the reality is that that pint still gets bought. And consequently the hundred pound a month repayment is anything but affordable.
Or they can't be bothered saving.
Stop with the victim mentality.
Wonga is 100% the culprit, it has a business model that was generating 30% return on capital, about the highest return any business could dream of. That return was not based on new technology or innovation, it was based on turning over every £1 of cash as many times as possible by making as many loans as possible. If every loan was repaid on time they apparently only made £15 profit on every loan, that would require them to make 4m loans a year to generate the profits they have made, but in fact that made a quarter of that number in loans. It must always have been realised that rolling over loans at 5,000% interest rate was the key to supercharging Wonga profits.
They rejected a fair proportion of loan applications which was presented to the outside as proof that were doing proper checks. I'm sure they would have had many fraudulent attempts to get money which got picked up in identity documents and accounted for many rejections, because given they approved loans in 15 minutes, how could they conduct proper checks on ability to pay.
Wonga showed its true colours when it sent out fake letters aimed at scaring people into paying up unpaid loans. Going through the proper legal process to obtain an affordable judgement from the courts for someone with little or no income is the last thing lenders want.
Wonga and others have simply set out to exploit a vulnerable section of society where demand for short term loans is almost infinite where they can name their own price, and they have.
The problem is that cash is a valuable commodity and anyone with cash would be better off putting it in any other business apart from using it in a business to lend small sums to people living on the breadline at a price they could afford. The Church has assets of over £5bn invested in the stock market and land, why can't they sacrifice some returns and do some good with it, could be the answer to boosting congregations!
They are designed to be used for short term use, therefore using the APR as an example of how expensive they are isn't always that clear. I don't have a problem with payday companies operating, I'm sure a lot of people find them useful. However, there does need to be tighter regulation. They should not be allowed to exploit and in some cases intimidate customers who struggle to pay.
However, the people that use them also have to take some responsibility. It can't all just be blamed on someone else. Personally if I'm entering into any contract, be it financial or otherwise I'll make sure I read as thoroughly as possible so I know the details. If I don't agree with the terms, you know what, I won't sign it. The charges are made quite clear to people from the outset. I think there needs to be some shared responsibility here.
I don't have a problem with "payday" loan companies. I do have a problem with them charging the sky-high fees that they do. It should not be legal for a company to extort money in this way. Its usury.
Canada and Japan have both found ways to legislate against it. In Canada, it's not legal to charge more than 60% per annum; in Japan, the figure is much lower still. We should do something similar.
The knee-jerk reaction is "that'll just lead people to go to loan sharks instead". Well, "loan shark" might be a pretty good description of some of these companies anyway. And a law would make it illegal in all cases, not just the "reputable" firms.
I think better regulation will help - but it's never going to please everyone.
The person taking out the loan does need to accept a certain amount of responsibility.
there are terms & conditions that show the APR - if you don't like it then don't borrow the money.
no good carping about it after the event - no one twisted their arm to fill out the application form did they.
and before anyone says that the borrowers are on the breadline & need the money to survive then I suggest you visit their homes & see the latest flat screen TV's they have & the X-boxes, Wii's etc that are in the kids bedrooms & then go to the slums of India, Rio etc to see what REAL poverty is !!!
Of interest is that the cap covers not just the headline interest rate but also any add-on admin fees and the like. fca.org.uk/news/cp14-10-proposals-for-a-price-cap-on-high-cost-short-term-credit
The full document, for those so inclined is here: fca.org.uk/your-fca/documents/consultation-papers/cp14-10