• Payday Loans - A Scourge On Society

    A recent Office of Fair Trading Report condemned the payday loan industry for irresponsible lending practices. Widespread instances of lenders failing to perform sufficient checks on the affordability of loans have thrown the payday loan industry under the spotlight once again. Many action groups have been set up to protest against the freedom payday lenders have to operate. Greater regulation is the key phrase among action groups, but how to manage the practice of lending as much as 50% or more of a person’s monthly wage ahead of the date it is due, is the question on everyone’s lips.

    An End Multiple Payday Loans

    Some believe the anticipated changes to the way payday lenders share information is long overdue. In the past, it appeared as though payday lenders did no research to qualify the financial situation of their customers, but that is set to change. Information about people who already have payday loans or who have applied for payday loans with other lenders is now to be shared among lenders in a centralised database. This should stop people taking out multiple payday loans in a short space of time and borrowing much more than is realistically affordable. It may not be the answer people are looking for, as some belief the government should take a harder line.

    Worse than Smoking? Not Yet!

    Just like alcohol and cigarettes, payday loans have a reputation as a blight on our society and it is beginning to suffer in the same way. Limits on the number of times a payday loan company can display its advertisement or the amount of times a payday loan from any company can appear in a certain media are the latest compromises made by regulatory authorities who have the power to restrict the way financial businesses operate. This follows upheld complaints to the Advertising Standards Authority (ASA). UK Charity, Credit Action, complained to the ASA that payday lenders were breaking advertising laws by not displaying interest rates on their adverts when using Facebook to attract customers.

    Lack of Responsibility

    It was more than just a lack of transparency that led to the move to limit the ability for payday lenders to attract custom. It was the emphasis on the speed at which, a loan application goes through the approval process, rather than the cost of loans that ultimately forced the ASA to act. If you have had the misfortune of seeing a Wonga advert in the ad breaks lately, you will notice the change from an ad that boasts a fifteen-minute turnaround to a message that says something like many of their customers pay their loan early. Whether or not that claim is true remains to be seen as the OFT report identified a business model that almost relied on people failing to repay the total of their loan on the promised date in more than one of the payday lenders. Given that Wonga has interest rates of more than 4,000%, is it likely they were any different?

    Still at it After all the Controversy

    You would think a clampdown would be enough to put payday lenders off messing around with their ads, but it just goes to show how much money they are making when the ASA can uphold complaints and the industry doesn’t bat an eyelid. Payday lender, Peachy, has been slammed by the press for misleading customers in its advertising campaign.
    The lender has been advertising loans with an interest rate of 1,918% on the radio, but instead of stating the correct rate, the voiceover quoted "nineteen eighteen per cent". Peachy denied accusations of misleading the public and protested their innocence claiming they had no intention to mislead anyone. Thankfully, the ASA banned the advert, but it is another mark against an industry that is rapidly running out of room for notches on the bedpost. Infamous debtor, Kerry Katona, also appeared in a payday loan advert for Cash Lady that was quickly banned because the ASA thought it would encourage customers to borrow to live a champagne-fuelled lifestyle; proof enough that the industry is scraping the barrel for credibility.

    Where Will it End?

    Are we facing a ban on payday lenders altogether? Some states in the US have laws, which outlaw the practice and other states have interest rate caps on loans. Are UK laws years behind these states? Some would think so, but it would dramatically reduce the need for debt management advice services in the UK. IT would also satisfy many of the pressure groups that sprung up to counteract the popularity of payday lenders and limit the amount of people affected by uncontrollable debt.

    Abel Froman is a blogging debt management professional who deals with payday loan companies each-and-every day. He believes that although the industry is cleaning up its act, there is still a long way to go. Follow Abel on Twitter - @AbelFroman.

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