For sheer ferocity in loan finance interest rates, it is payday lenders who have received huge public attention and the watchful gaze of industry regulators.
But when it comes to loan charges, the mainstream clearing banks are not far behind. Indeed, in some cases they are charging more than payday lenders to borrow money – up to £100 in charges and interest to borrow £100 for one month, according to a new study.
The consumer group Which? says going overdrawn can be as “eye-wateringly” expensive as taking a payday loan and, in a similar way to rolling over a payday loan, people can rack up “sky high” default charges if they slip into an unauthorised overdraft. The research found that a loan of £100 for 31 days would cost £30 with a Halifax authorised overdraft or £20 with some Santander accounts, while borrowing the same amount for around a month with a payday loan firm such as Quickquid or Wonga would cost between £20 and £37.
The payday lending industry will come under tougher regulation next year. Now Which? is calling for the Financial Conduct Authority to ban “excessive” charges across the whole consumer credit market so that default charges reflect lenders’ actual costs. It also wants to see a cap on default charges, tougher affordability checks and an end to lenders making unsolicited increases to people’s credit limits.
In this, the banks have a difficult balancing act. On the one hand they are under pressure to lend more to help households and the economic recovery. On the other they are under pressure not to repeat the errors of the pre-Lehman Brothers era when loans at attractive “come-on” initial rates were too readily available.
The payday industry has grown largely on the back of a marked reluctance by the banks to lend other than to the safest and most secure borrowers until the mountain of non-performing and problematic lending has been reduced. With household incomes under pressure, this has boosted payday lending.
This service meets a market need and fortunately most of the loans are paid back, fully and on time. But much of the lending they undertake is inherently more risky – it is by its nature unsecured – and the greater the risk, the greater the need to cover the costs of loan default through higher charges on all borrowers.
The most practical and effective solution is to treat all lenders equally and require both banks and payday lenders to be fully transparent as to fees, charges and interest rates, both when the loan is initially taken out and also when an application is made to renew or roll over the loan. Borrowers must be fully and unambiguously aware of the charges they face and further charges and fees they may incur. This would help consumers to make an informed decision and also help to ensure more effective and healthy competition in this important segment of the lending market.
SNP conference needs many tongues
Gaelic certainly, Doric possibly, but will this week’s SNP conference now need Esperanto? Some 50 international diplomats representing countries round the world are expected to attend the party conference ahead of next year’s independence referendum.
It is a measure of the global interest in the outcome that the conference is set to attract representatives from more than 20 countries, including Cuba, Qatar and Cyprus as well as Russia, Japan and Germany. This historic vote is of global interest, not only because of the implications for Scotland but also the impact it will have on the future of the UK as a global power.
Countries with federal constitutions such as Canada and Germany will find the conference of particular interest. Spain will be watching events with some apprehension, given its concerns over the Catalan independence movement, while smaller nations will be heartened by the party’s independence ambitions.
Of particular interest to European representatives will be the status of an independent Scotland as it seeks to maintain membership of the EU, and the SNP’s proposals to share a currency union with the rest of the UK, given the evident problems some Mediterranean countries have had within the eurozone. Delegates will take comfort that several European countries are sending representatives rather than relying on a round-robin resume from the EU’s foreign affairs commissioner.
And who could not forgive a quiver of anticipation among diplomats who might view an independent Scotland with some relish, given the opportunities for golf, fishing, shooting and whisky-tippling that a posting in Edinburgh would have to offer?