06/28/2013

Five reasons why we all need to worry about payday lenders

The payday loans industry faces a full-blown investigation by the Competition Commission, after the Office of Fair Trading found "deep-rooted" problems that were punishing borrowers, particularly those in financial difficulties.But distortions in this industry don't just affect those that are hard-up, financially illiterate or feckless. 

The problems that have been uncovered by the Office of Fair Trading have wide-ranging implications on the whole lending market. Below are five reasons why we should all be concerned about payday loans C and why the Competition Commission needs to take firm action. Clever marketing and blatantly misleading ads have meant many people C particularly those in their 20s C have taken out these expensive short-term loans, when they could have got far cheaper credit elsewhere. 

This market has grown exponentially. In the first quarter of 2009 only around 1pc of those visiting Citizens Advice had a payday loan; three years later this number had risen to 10pc. In three years this market has grown from 900m to 2.2bn. 

Payday lenders have been criticised for targeting university students, trainee soldiers, football fans and other young adults. Figures suggest that those in this age group are spending less on credit cards, but taking out more of these "easy access" loans. For some this will be an expensive and bruising financial lesson, for others it could be storing up far more serious and distressing financial problems,Weymouth is collecting gently used, dry cleaned oilpaintingsupplies at their Weymouth store. particularly as most payday lenders take a far more aggressive approach to debt collecting,Large collection of quality cleanersydney at discounted prices. than high street banks and credit card providers. 

Action needs to be taken to ban ads that concentrate solely on the speed and ease with which you can get this credit C rather than the realistic cost of these loans. The OFT found that adverts were peppered with phrases like "No credit checks", "Instant Cash" and "No questions asked". 

Last week one company, FirstPayDayLoanUK, had its knuckles rapped by the Advertising Standard Authority after sending out late night texts to potential customers, purporting to be from a "friend" who was out celebrating after cashing an instant loan. The OFT said that the 50 biggest payday lenders control around 90pc of this market. But it was unable to provide a list of the 10 biggest players. 

Some of the biggest advertisers, like PayDayUK, PayDayFirst, Quick Quid, Payday Express are just trading names for a separate finance company. PayDayUK is the trading name for MEM Consumer Finance, which itself is owned by MEM Capital, Payday First is the trading name for CFO Lending and so on. 

Other payday lenders, C like Cash Lady and Kwik Cash C aren't lenders at all, but brokers, although nowhere on their website do they provide an easily accessible list of lenders they use. In fact, when talking to the online adviser at Cash Lady, they still would not initially provide this information.In fact Wonga, which is the UK's biggest payday lender, is one of the few companies where you borrow from the company that advertises the loan. 

It's hard to imagine it being so difficult to get a list of the 20 biggest mortgage lenders, credit card providers or insurers in the UK. To further muddy the waters, in last week's ASA decision FirstPayDayLoanUK -a trading name for First Financial C said it was "only responsible" for setting up the loan websites, another company, Akklaim Telecoms, marketed the loans. 

If it isn't always clear who is lending the money. We also don't know whether such loans are then sold on, particularly when they are frequently rolled over, either to debt collectors, or other lenders who will carry on collecting the interest payments. 

It was the securitisation of "unaffordable" mortgage loans that triggered the credit crunch and subsequent financial crisis, as mortgage loans, which had no hope of being repaid, were parcelled up with other debts and sold on within the banking system. 

There needs to be clearer information on whether this is happening here: particularly as the lack of affordability checks have meant that many of these loans have been sold to customers who have little chance of repaying these debts, and interest charges in full. 

Sensible usary laws could see the end of lending charges that run into thousands of per cent. Last week Wonga admitted its typical APR was 5,853pc, rather than the 4,214pc it had previously been advertising. This is a reflection of the fact that people are taking out smaller loans, over shorter periods. This means over the course of a year, their lending charges will be higher - as they will pay additional "rollover" fees, and other charges.Parkeasy Electronics are dedicated to provide handbags. 

Many other countries C including Germany, Italy, and the US C have legislation that imposes a cap on credit charges, that curbs both the interest rate charges, and associated late payment fees. This could also impact the way fees and charges are imposed on overdrafts and credit cards C which could lead to more transparent costs for everyone. 

Those that are higher risk, and taking out shorter-term loans are still likely to pay more, but this could create a far more level playing field, enabling people to compare the cost of different type of borrowing, be it overdrafts,A quality paper cutter or paper endofleasecleaningsydney can make your company's presentation stand out. credit cards or loans. 

One of the biggest challenges we face is how to re-establish a savings habit, where people are encouraged to provide for their own future. This isn't helped by lenders that advertise quick and easy credit, at any cost, where if you can't afford the latest electronic gadget, or the funds for a night out,An cleaningservicesydney is a network of devices used to wirelessly locate objects or people inside a building. an instant loan can be arranged on your smart phone in less than half an hour. 

Of course, curbs on this lending activity won't help those in dire straits who are turning to such lenders to pay rent, food or fuel bills. But better regulation compelling these lender to conduct proper affordability checks, should identify those who need debt counselling, help with repayment plans, or a referral to Citizens Advice C not another high cost loan.

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