I have been listening to the BBC news service lambasting the unfair charges of the enormous number of Payday loan companies out there at the moment, charging rates varying from several hundred to more than two thousand per cent.
Whilst I should say right at the start that part of my business involves the collection of overdue debts, I do not have any clients who deal with consumers, nor have I ever had any dealings with Payday loans professionally or personally.
A number of things occurred to me this morning:
In my industry, we are being pressed (quite rightly) to be aware of the issues that particularly vulnerable customers might have in repaying overdue debts. In fact, we have to be very careful to ensure that we identify any customers that could be identified as being vulnerable. By vulnerable, they mean categories of consumers such as the elderly, unemployed, single parents, or those suffering from physical mental or emotional impairment amongst other things. In the case of payday loans, I think it would be fair to accept that customers could in very many cases be categorised as vulnerable at the point of application. So by the time that they default on the payday loan as well, they are most definitely vulnerable.
Would it be fair to say that this entire industry is creating vulnerable debtors at the very least, and exacerbating the situation of existing vulnerable debtors at worst? Yes, maybe it would.
But in all of this righteous indignation about outrageous interest rates etc. would it not also be fair to say that those who find themselves in a situation where they have to consider these loans have the right to information that can help them make fair comparisons between all the options available to them?
As always, it seems that the banks are having an easy time. Those who are in financial distress and who have bank accounts with their agreed facility ‘maxed out’ have no way of being able to look at the option of exceeding their authorised limits for a short time as opposed to going to a payday loan company.
Banks have no requirement to display the effective APR of exceeding their agreed limit. The OFT have stated that under the Consumer Credit Regulations Act of 2010, businesses do not need to state an APR for “any charges payable due to non-compliance with commitments contained in the consumer credit agreement”.
So here comes the shocker. For exceeding your overdraft by as little as £1, High Street Banks in the UK are charging an effective rate, in some cases, of 800,000% – yes that’s right – that’s an eight followed by five zeros! (http://www.bbc.co.uk/news/business-16002022). Let’s just be clear – that’s from a high street bank. That’s 200 times more than most payday loans. These charges are allowed to be hidden by regulation. It would seem that, once again the consumer’s rights come a poor second place to the banks’.
Vulnerable consumers should have the right to be able to see at a glance and in terms that they can understand, information that allows them to make fair comparisons with other options. At the moment, in certain circumstances, that is not the case, and those vulnerable debtors that the Government seems so keen to protect at all costs are making decisions without all the information that they need and that they deserve.