Payday Lenders Under Fire

Scottish MSP Margo MacDonald has written to The Office of Fair Trading asking if payday lenders such as Wonga, Quick Quid, Payday Bank and Payday Kong are acting within the law.

MacDonald wants to know if these type of loans are covered by the cooling off period that allows consumers to back out of a loan any time within the first 14 days. As payday loans can be for less than 2 weeks she sees this as a backdoor method of trying to put them out of business.

She also wants clarity on a law north of the border that says a witness is required for certain types of contracts. Again, if this rule were applied to payday lenders that operate online it would prevent them from doing business in Scotland.

Her letter to the OFT also says:

‘My concern, on behalf of my constituents, particularly those of modest means, is that the companies may be operating on the very borderline of legality.’

She currently has her staff checking payday lender websites to see if they can find any that are breaking rules such as not displaying the APR correctly.

The OFT have the letter and say:

‘This is being considered within the Office and a substantive reply will be sent.’

Meanwhile MacDonalds sister in arms – Stella Creasy, Labour MP for Walthamstow, East London – is set to meet the OFT later this week. She claims the Government is ‘dragging its heels’ on payday lenders as a commissioned report about them by the Dept. of Business is not due until late next year.

Creasy argues it should take no more than a few months and wants a cap on interest rates in place before Christmas.

‘They are borrowing to cover their rising cost of living. I don’t want to get rid of these companies, but I do want to regulate them. What is clear is that Consumer Minister Ed Davey doesn’t want to talk about this and wants it to go away. But this is about consumer protection. It’s just common sense.’

These payday lender companies are now huge and adding some much needed funds into the Governments tax chest so I don’t give them a cat in hells chance. Why should the Government close them down when the latest data clearly shows the majority of payday loans go to middle income earners who need a couple hundred quid for a few weeks to cover a standing order or face huge charges from their banks who refuse to give them some breathing space just so they can charge them those fees?

And lets not kid ourselves, capping will shut them down and these crusaders know that full well. APR means jack shit when applied to payday loans because they are for extremely short periods. APR stands for Annual Percentage Rate so when applied to a payday loan it means that is how much you would pay if you had the loan for a year but of course you don’t – you have it for weeks, not months.

Take a £100 loan out for a year with an APR of 100% and in 12 months you pay a total of £200 back. Take out a £100 payday loan for 2 weeks with an APR of 100% and you pay back £105 at the end of the fortnight. Clearly the payday lenders cannot operate within those margins and will just close down if a cap is forced on them.

Why don’t they do something useful and go after the banks who charge the huge overdraft fees so we don’t need to take out a payday loan to avoid their charges instead of trying to remove an option that the majority find both useful and convenient?

Source: This Is Money

loans, Margo MacDonald, payday lenders, Stella Creasy

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