Teej Dew, our Financial Inclusion Programme Director, reflects on the claims by payday lenders that they are misunderstood and logic checks the rhetoric.
Today, MPs questioned Payday lenders on their practices. There is a call to restrict the number of ‘roll over’ loans that can be offered by these high cost lenders, which of course the industry is resisting.
One company claimed this morning that it only offers a loan to 1 in 10 new applicants. Let’s unpack that. This is a phenomenally fast growing company. Either it has a vast number of applications or much of its almost exponential growth is down to a combination of new customers and returning customers. Returning customers. Why would people return again and again for a high interest payday loan? Because they cant afford to get to pay day this month, next month and the following one after that. Logically, and by definition, doesn’t taking out a payday loan mean that the person is doesn’t have enough money?
I hear young people talking freely about a particular payday loan company with appealing adverts. Using them is becoming a way of life, a habit. We heard today that even taking out a payday loan could adversely affect a future mortgage offer. With a rise in the number of under 25s using these services, aren’t we storing up problems for the future?
Another company says that they ‘conduct strict affordability checks’ to make sure that people can make repayments. Do they? Can they? In an hour? Really? How? For example, do they access an individual’s bank account and check how many other payday loans they have on the go? Credit unions do exactly that when they are assessing loan applications and the results are very worrying. Multiple payday borrowing is not untypical.
Many have pointed to credit unions as a helpful alternative to payday lenders. This should not be expected of them. Why? Because, credit unions are not just about quick credit. They are about affordable and *responsible* credit, savings and a balanced way of managing finances. They are an excellent place to manage money and will try to help, whatever a person’s income or circumstances but they should not be used for lurching from one pay cheque to the next, no lender should.
If people are struggling with their personal money, taking a loan out with interest attached should be the last thing they should consider. It should not be the first and certainly not because there is an advert on a free app on their mobile phone. They need help and there is an excellent standard of advice available which is free to use. The Moneymadeclearwales website (www.moneymadeclearwales.org) is a great starting point for people wondering what to do about financial pressures. It gives basic guidance and links to the experts.
Payday loan companies say they and their customers are misunderstood. They say that not everyone is ‘poor and disadvantaged’. Maybe not, but some are….. and they are all a bit poorer for using a service that costs so much….. and they are disadvantaged by having even less money to get them through the next 30 days. It’s all relative.