Payday loans – Expert’s view

It’ll be no surprise by now that we’re not big fans of payday loans. This industry has seen the UK as a crock of gold. Huge money has flooded into the UK due to our weak regulations while other countries, notably the US, have cracked down and regulated their industries. However, with January 2015’s total cost cap, we may see a decent amount of change in the industry.

Our Editor-in-Chief Martin Lewis has campaigned on our behalf for much stronger regulation – giving evidence at the Business, Innovation & Skills select committee of MPs, addressing the Government’s Payday Loan summit, as well as media appearances and working alongside the likes of payday loan-campaigning MP Stella Creasy.

Here’s Martin’s quick list of some of the changes we’d like to see…

  • Ban advertisements for these loans on children’s television. This is an attempt to target hard-pressed families – even though lenders claim they are not their target market.
  • Restrict the nature of the adverts. Payday loan advertising is pervasive. They make it look like this is a fun, little transaction rather than a hardcore form of debt. The ads should have much more prescriptive content rules about how they’re presented.
  • A lower total cost cap should be introduced. Good news. The regulator has brought in in a total cost cap for payday loans. So, for every £100 borrowed, the lender shouldn’t be charging more than 80p in interest per day – if they are, do report them to the FCA, as they’re breaking the law.And, the total cost cap means you’ll never pay back more than double what you borrowed. So, for example, if you borrow £100, you’ll never have to repay more than £200 in interest, fees & capital repayment, including the original cash lent. However, MSE has called for a lower total cost cap, so you’d pay at most £150 for every £100 borrowed.
  • There should be a delay between applying for a loan and receiving the cash. These loans sell themselves on convenience, but they are too easy. In some cases, the money can appear in bank accounts within 15 minutes.While there’s a 14-day cooling-off period, as for any credit agreement, it’s relatively meaningless as you have to repay the capital plus interest/fees for that period (so at these rates it’d still be expensive).

    Therefore a one-day delay before receipt of the cash, at least giving people a chance to reconsider before there are any charges (especially those who apply when intoxicated), would be useful.

  • Mandatory affordability and credit checks. Many payday loan providers already do credit checks. But some advertise their loans predicated on the fact that they do not credit check you. It should be mandatory for all payday loan lenders.