Ban Payday Loans – Be Careful What You Wish For

Housing charity Shelter say around 1 million people turned to payday loans last year to keep a roof over their heads and it seems the findings are yet another stick to beat the lenders with as the calls to ban payday loans grows ever louder – even though those attacking payday loan lenders offered no viable alternative apart from to ‘talk’ to an expert.

Campbell Robb, Shelter’s chief executive, said that payday loans are a “totally unsustainable” way of borrowing – completely ignoring the fact that a good percentage of those 1 million people may well have become a further burden to his charity had they not had a payday lender to turn to.

MoneySavingExpert.com’s Martin Lewis chipped in with “It is incredibly worrying that there is now evidence that people are using payday loans to meet housing costs. While it is an obvious temptation to grasp these loans as a lifeline, in the long run it may hurt more than help.” – Just a shame that no alternative ‘lifeline’ was mentioned or is that because there isn’t one?

The Guardian claimed in their spin on this story that someone in Britain loses their home every 2 minutes and surely that would have been even worse had people not been able to turn to a short term lender?

These attacks on payday lenders were coming thick and fast in the run up to Christmas and I’m sure will continue as Stella Creasy and other MP’s push for interest rate capping or even banning the payday lenders from plying their trade as some SMP’s are trying to do north of the border.

Only a few weeks ago Lord Mitchell wanted the government to protect the ‘vulnerable and gullible’ from payday loans and in the run up to Christmas the Office of Fair Trading said it planned to crack down on hidden charges and unclear interest rates.

The fact is that no one is going to take out a payday loan, an unauthorised overdraft or pawn a family heirloom unless they have no other option and with the banks not interested in handing out personal loans unless you have an A1 credit rating and certainly not to someone in mortgage arrears, most of us using these types of loans just do not have any legal alternative.

It’s all well and good Shelter condemning payday lenders and telling us it is far better to seek debt advice as soon as possible rather than use them but what good is advice when the bank is threatening to repossess if you miss another mortgage payment?

Advice for sure will help if you aren’t in dire straits just yet – it can help with budgeting and prioritising your debts and will warn what you can expect to happen if you continue to fail to meet your financial obligations but it doesn’t help when the wolf is banging away at the door.

People should be careful what they wish for because a ban on payday loans would mean there would be no one to help people get through those tight months when the wages don’t stretch far enough and that would mean repossessions and homelessness on a far bigger scale than we have at the moment.

MP’s wanting to ban payday loans often talk about credit unions as a viable alternative but miss the point that it is middle income earners who are payday lenders biggest customers. People who haven’t had a pay increase for a few years yet continue to see their cost of living spiral out of control.

They talk about capping interest rates yet refuse to accept that it is unfair to use APR when talking about short term loans. It’s a bit like insisting car hire firms have to display the annual cost of hiring a car even though they only rent out short term. Instead of advertising they charge just £40 a day they would have to advertise their rates as £14600 – is that fair and is it even helpful to the consumer who actually just wants to know how much it is going to cost for the week?

Quick Quid for instance have to declare their APR is a whopping 1734% even though it actually costs less than £20 to borrow £100 for a month. If your mate borrowed you £100 for a week until you get paid wouldn’t you buy them a few beers and a fish and chip supper on the way home as a thank you? If you did and even though that seems perfectly reasonable to you, me and your mate, he would actually be charging a far higher APR than any of the payday lenders operating in the UK today.

The press release from Shelter would have carried far more weight had it given a genuine alternative to the folk who find themselves without enough money to make this months mortgage payment or rent instead of just telling them to “seek advice.”

Stella Creasy and anyone else who wants to ban payday loans – what’s your alternative for us next time we get a red letter and are caught short, should we all declare bankruptcy or go on benefits perhaps and become a burden to the state?