I’m not sitting on the fence on this matter. Granted it’s better in some U.S. states compared to the UK, but ultimately they are led by morally corrupt and emotionally insensitive corporations who are focused on nothing more than increasing their profits.
The payday loan market grew as a direct consequence of the decline of other available credit, such as personal loans and credit cards. Overdrafts have been
A million people in the UK have at one stage turned to payday loan companies to pay their mortgage or rent. It’s a sad indictment of the current financial situation, but payday loans are not the answer. The answer is solving the fundamental money problem. Payday loans delay the inevitable for many people; that their finances are out of sync and need addressed.
Wonga published net profits of £185 million for the last year in September. The payday loan companies often say, “for every £100 borrowed we get £25, now that doesn’t sound like a lot, does it?”. Well, let’s break that “£25” into £185 million. It’s not the exuberant fees that are the major problem, it’s the demographics of the people that use payday loans.
It’s a trap which people can’t afford to avoid.
The Payday Loan Trap
Benjamin Franklin once said:
“Think what you do when you run in debt; you give to another power over your liberty.”
You lose social and economic control when you are in debt. The type of people who are in debt are young adults, under 35 without children. This is unlike the U.S. when the payday loan lenders are usually older with families. In the U.S. adults without bank accounts have been targeted as ideal payday loan borrowers, whereas in the UK, people with low incomes (under £25,000 per annum) are ideal borrowers.
Payday loans are a trap, especially in the UK. People are caught in a continual cycle of paying minimum payments which will ultimately enhance the total amount of debt. In the end, a simple £500 loan has been known to increase to £15,000 in a relatively short period of time.
In the United States they have a better proposition. Each state can determine the rules, with most setting a protective stance to cover the maximum amount that can be lent, a maximum number of roll over periods and a maximum loan term. For instance, in Nebraska the maximum length of time the loan can exist is 34 days. The U.K. must adopt a similar relationship with payday loans.
People contacting debt charities owe on average £1,200 to 4 different payday creditors with 40% saying they were using the money to pay for basic living costs.
Payday Loan Techniques
Be aware of payday loan techniques which can affect you. Some include
- The payday loan company taking money out your bank account without your permission
- The payday loan company refusing to negotiate a repayment plan when you fail to pay
- The payday loan company trying to “roll over” the debt into another loan with more fees
- The payday loan company adding hidden fees and charges
- The payday loan company selling your data
- The payday loan company contacting you at your work and telling your employer about your debt
- The payday loan company visiting your house and telling your family and friends about the debt
- The payday loan company lying about what could happen to you e.g. they once said “You will go to jail for the debt”, which is factually incorrect
- The payday loan company swearing at you or insulting you over the phone
AVOID PAYDAY LOANS…. (please)
Please let me explain. Payday loans are a vile financial cancer which exploit people who are between a rock and a hard place and have no other alternatives but to get stuck on the hamster wheel of debt.
I’m not one to sit on the fence. I don’t accept the argument from payday loan companies that the fees are proportionate to the risk they face in lending to generally sub-prime clients. They make millions in profit every year. The fear people feel because of payday loan companies is horrendous. There have even been reports of people killing themselves because of the debt they owe to a payday lender.
Politically and socially something must be done. Politically nothing will be done because we are in a financial crisis and the Government can’t answer the one question which would be asked, “Well what are people meant to do to survive financially?”.