| 'PAYDAY' LOANS - Not just a US phenomenon. The Office of Fair Trading in the UK will investigate these. ECRC partner DOOD is in contact with OFT which is about to start a year long project investigating responsiblity in lending. |
Two articles below show the renewed interest by regulators in responsible credit.
CALL FOR ACTION ON PAYDAY LOANS
(BBC, live interview with Damon Gibbons on Saturday 26th July)
Debt advice groups are calling for urgent action over payday loans that charge extremely high interest rates.
They want the market regulator to make lenders behave responsibly, as some companies have lent money at a rate equivalent to almost 2,000% annually.
Payday loans typically involve a lender advancing a customer cash, usually for a month, against a post-dated cheque.
The Office of Fair Trading (OFT) said they would be covered by investigations of the issue of responsible lending.
Although the loans, often used by people to tide themselves over until they get their wages, generally attract high rates of interest, the businesses offering them are properly licensed and they say they are professional and responsible.
One company providing payday loans, The Money Shop, told BBC Breakfast it offered a valuable service to those "who may alternatively be faced with high unauthorised overdraft costs".
It said the cost of its lending products reflected the levels of risks it took.
'EXCESSES'
Beccy Boden Wilks, of National Debtline, a helpline for those in debt, said that the credit crunch meant that people were looking at alternative forms of borrowing.
"If they can't get another credit card balance transfer, they will start to look at other forms of borrowing, which could be payday loans or pawnbroking, which are quite expensive."
Damon Gibbons, of debt campaign group Debt On Our Doorstep, said urgent action was needed.
"We certainly welcome the fact the OFT says it is looking at the issue of responsible lending more generally in the UK," he said.
"But we want to push them further to ensure payday lending is at the top of their list and is acted on immediately.
"We believe there is a lot more they could be doing to curb the worst excesses of the payday industry."
Many loan shops are owned by American companies, and hundreds have opened in the UK after some state authorities capped the rates they could charge in the US.
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WATCHDOG TO INVESTIGATE 'PAYDAY' LOANS
(guardian.co.uk, Monday July 28 2008)
The competition watchdog is investigating companies offering expensive loans to tide people over between paydays for possible irresponsible lending.
The Office of Fair Trading (OFT) said it was examining so-called payday loans as part of a wider project on responsible lending.
Payday lenders typically advance sums of up to £1,000 on a short-term basis, usually to tide people over until they receive their pay cheque at the end of the month.
But the loans have come in for criticism for annual percentage rates as high as 2,000%.
The number of people resorting to such loans has climbed steeply in recent months as consumers struggle to make ends meet in the face of higher living costs.
The financial website moneysupermarket.com said there had been a 130% increase in the number of payday loans taken out during May compared with August last year.
An OFT spokesman said: "The OFT is shortly about to undertake a project looking at what constitutes responsible lending under the Consumer Credit Act and how this affects companies' holdings of consumer credit licences.
"This project will examine several areas of consumer lending, including payday loans." The OFT said the study would last around a year.
Malcolm Hurlston, chairman of the debt charity the Consumer Credit Counselling Association, said some US firms were now operating in the UK after payday loans were restricted or banned in several US states.
He said the market needed investigating, but it was important to make sure the loans were not banned unless mainstream lenders were able to step in to help people who needed to borrow in the short term.
"Otherwise you are simply creating opportunities for loan sharks," Hurlston said.
Geoff Holland, chief executive of the trade body the British Cheque Cashers Association, of which high street payday loan providers are members, said it was "extremely misleading" to talk about APRs in relation to the loans as the money was lent over such a short period.
He said most of his group's members lent people £88 for 28 days and charged £12 for the service.
This meant an APR of 429.9%, even though the interest paid was only 13.6% of the principal.
Holland added that, for many people, payday loans were cheaper than incurring charges for an unauthorised overdraft or bouncing a cheque.
He said: "The industry is very heavily regulated. We cooperate fully with the OFT and will continue to do so." |
| ID: |
41651 |
| Author(s): |
Damon Gibbons |
| Publication date: |
30/07/08 |
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Created: 30/07/08. Last changed: 30/07/08.
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