ASK anyone about payday lenders and they’ll tell you about the huge interest rates they charge. That includes the borrowers that take them out, which is why the continued focus on the interest rates is a gift to the payday loans industry.
Have you ever wondered why payday lending firms are so happy to advertise those extortionate interest rates, typically in the thousands of per cent? Go to any payday website and the figure will be writ large.
It allows them to pretend that they’re open and transparent and for far too long we’ve fallen into their trap. The firms rightly point out that the loans aren’t designed to be repaid over a year, making the APR irrelevant. But the APR obsession has prevented the light from being shone more brightly on far more murky practices.
Until now. The Office of Fair Trading (OFT) last week hit out at payday lenders in unusually strident terms. Payday lenders cause “misery and hardship”, the OFT said of a market in which there are “widespread breaches of the law and regulations”.
Payday lenders have thrived in Scotland in particular. The number of people in Scotland going to the StepChange debt charity for help with payday loans more than doubled last year, while Citizens Advice Scotland has encountered thousands of people who have discovered just how low payday lenders will go.
Borrowers trying to negotiate a repayment plan find the firms “uncooperative, obstructive and difficult”, said the OFT, which could have added that many are simply aggressive and bullying.
See what I mean about the APR not being the issue?
But the OFT and the Financial Conduct Authority – which takes over from the Financial Services Authority next month and assumes responsibility for consumer credit in April 2014 – have to be very, very careful.
Crack down on payday lenders by all means, but do it in a way that doesn’t exacerbate the difficulties facing the consumers who use them. A properly regulated payday loan market has its place, especially at a time when banks and building societies are turning so many people away.
Ban all payday lenders or impose too many restrictions and you leave vulnerable debtors at the mercy of illegal loan sharks. Regulating them effectively and protecting consumers without wiping the market out entirely is the only sensible approach.
Dangerous products list
Talking of risky products, you’ll be delighted to learn that Bonnie Tyler is far from alone in having been chosen to represent us on the European stage. I can reveal that both Royal Bank of Scotland and Barclaycard have made the final stages of a competition to identify Europe’s most dangerous product.
This contest – see www.dangerous-finance.eu/survey/ for more – was launched to promote new powers making it easier for the European Securities and Markets Authority to ban such products. We’re now down to the final four in two groupings. RBS features in the category of “products that harm the environment, the global poor and or third parties”, due to its Sands TR Equity Certificate.
This seeks to reflect the performance of the sustainable oil sands TR Index, which measures the performance of companies with operations in oil sands. Such products have a negative impact on the environment by promoting the extraction of oil sands, the nomination explains.