Payday Loans

They call them “payday loans” because these are loans intended to be made for a few days to tide a person over from one payday to the next. They are at astonishing high rates of interest – rates which forty years ago (when inflation was higher) would have been considered so high by the courts that they would have been ruled illegal, because the rate made it very hard to repay. This often happens today but the rules have been skewed; instead of favouring equity, they favour the money that makes these unconsciousonable lending.

One company has got itself into the news when it threatened to send a doorstep collector to one of its customers who could not repay what she had borrowed from it. This bright example of capitalism is called Minicredit and it also threatened to contact the employer of the borrower, although what business it was of the borrower’s employer I have been unable to figure out.

The young lady concerned borrowed £100 and a short while later found herself owing £750. Minicredit state that they have new put procedures in place to ensure that the customers for it which cares so much will not be threatened to have their employers contacted in future; this strikes me as odd, because I doubt if Minicredit’s employee who made that threat thought it up all by himself or herself.

Payday loan companies are regulated by the Financial Ombudsman Service but the regulation does not extend to deciding what a fair rate of interest is. If you need to borrow £200 for a month Minicredit will charge you 4,144% APR. Wonga, who advertise on the telly, will charge you 4,214%. Frankly, it should not be allowed.

The economic effect of this level of usury is to impoverish the poor and to enrich the rich, in each case unjustly. Money lending at this level has always been unsavoury in its operation, even though what are now massive financial institutions have grown out of small money lending enterprises that broke the odd bone in their collection efforts a hundred years ago. Threats to tell employers about the payday loan of employees were common place then and considered as blackmail.

All sorts of people have difficulty in managing their money, but for millions of them the difficulty is increased either by knowing there is what at a superficial glance by a desperate person may appear an easy option of a payday loan.

It is argued that payday loan businesses prevent organised and vicious criminals entering into the business of loan sharking.

It would be easier to prevent and deal with the loan sharking by criminals than it is to deal with the effects of these legal and regrettable payday loan businesses.


One Response

  1. Nicely explained documents on payday really it clarify’s many doubts about payday loan. Thanks

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