Last week, we received confirmation that the Office of Fair Trading has carried out checks on 50 payday loan companies, who account for 90% of the market – and found they were failing to comply with the expected standards. Now working to a 12 week deadline to fix their shortcomings, we find the debate and justification of payday loan companies coming back into the spotlight.
Payday Loans facing stricter regulations
With Wonga’s chirpy and flirty advertising campaigns, payday loan companies have quickly become more tactical on how they present their brands. Friendly, fun and approachable are the connotations they now seem to aim for, and in many cases succeed, at least in their advertising. But the reality is far from the truth for so many of them.
This is an industry, as noted by the OFT, with evidence of “widespread irresponsible lending”; reasons were stated as lenders not carrying out proper affordability checks before lending, rolling loans over, failing to explain adequately how payments will be collected and then acting aggressively to claw back debts and not making enough allowances for struggling borrowers.
Is there a place for payday loans?
At ClearDebt we’ve always been staunchly against payday loan companies. However, we appreciate under certain circumstances, there is a place for these companies. CEO of ClearDebt, David Mond, explains:
I am against PayDay lending on a continual basis BUT it might be appropriate for a one-off emergency before receiving wages – the problems occur when it’s used as a continuous rolling over or re-borrowing tool with often, outrageous interest rates
I think most people acknowledge that for those who cannot get credit, the times when the washing machine or fridge break down, are the times when payday loans may become their only option. But lending of this kind needs to be monitored more closely to ensure those borrowing in these circumstances, can afford the repayment as soon as payday arrives. Payday loans are called so for a reason. They’re not called “rollover loans”.
So…we ask you, have you used a payday loan yourself, and what’s your view on this very topical subject?