City to consider tough new measures on pay day loans

A PETITION calling for tough new measures against pay-day loan companies – including a ban on all new stores – is to be considered by city leaders in the New Year.

Edinburgh City Council will examine a raft of proposals by Lothians MSP Kezia Dugdale designed to protect consumers from being ripped off from what she described as “predatory legal loan sharks”.

New measures would include the rejection of planning applications for new shops and a crackdown by Trading Standards.

Mystery shoppers would also be used to ensure staff are explaining the implications of loans – which can run to more than 4000 per cent APR – and not pressuring customers.

The move came after Dundee City Council this week blocked access to pay-day loan websites on local authority office computers, along with public terminals in libraries, which are also among the measures to be considered in the Capital.

The petition – which goes live from January – will need 500 online signatures to be considered at the top level but Ms Dugdale said she expected considerable support.

City leader Andrew Burns today said the local authority would look at any proposals to tackle pay-day loans 
“sympathetically”.

Ms Dugdale said: “Companies which offer high interest short term loans were one of the great economic successes of 2012 – making their millions by exploiting the financial misery of thousands of Scots.

“I was contacted by a constituent who took out a loan to pay for her kid’s bus pass. She then took out another to try pay that off and now she owes thousands.”

The use of pay-day loans from firms like Wonga.com – known for its sponsorship of Hearts and its “Wonga Grannies” adverts – and QuickQuid and KwikCash has increased massively during the recession as families struggle to make ends meet. However their rates are far more expensive than High Street banks.

For example if £10 is borrowed for 10 days from Wonga.com, around £17 would have to be paid back, and rising to around £22 over 40 days. A loan of £400 would cost nearly £580 to pay back over 40 days.

Other firms charge even higher rates and debt can spiral rapidly if repayment dates are missed.

In November the Financial Ombudsman Service, which resolves disagreements between companies and individuals, revealed it currently finds eight out of ten pay-day loan complaints in favour of the consumer.

Russell Hamblin-Boone, chief executive of the Consumer Finance Association which represents lenders in the UK, voiced concerns that a blanket ban would hit responsible traders.

He said: “Research shows that 91 per cent of payday customers are satisfied and 85 per cent have no trouble paying back their loans.

“In addition, responsible lenders such as the CFA’s members operate by a strict code of practice.

“So we are keen to work in collaboration with councils to ensure consumers are protected from rogue lenders but retain access to the short-term credit they need from regulated and reputable lenders.”