Are payday loans companies scum or the people who use them?
Discussion
Edit: I don't mean all the people who use them, but the people who scam the companies.
So driving through a town near me sometimes (Shotton/Queensferry, Deeside) I note that most of the shops are either permanently closed or shut down completely.
The only shops open are national banks, fast food places (the big chains like Papa Johns) and...payday loan companies like The Money Shop.
So doing some digging on them and seeing the insane profit margins and the new laws etc etc.... now I am wondering.
If you run one of these and you are clearly upfront about the charges, about the 1000+% APR, (£23 paid back over a week on a £20 loan is 1400% APR so not at high as you think) and NO HIDDEN CHARGES, no service charges, no recommending other companies you own to borrow more money off to pay your loan etc (all the unscrupulous stuff)....are you scum?
Furthermore you have to charge a lot to make up for the people who default who never plan to pay it back. You can't prove it, as yet no one has invented commercial grade truth serum, so borrowing money they don't plan to pay back is not illegal (silly). Are people who take out a £2k loan with no intention of paying it back, smart or scum?
Because people view theives as scum. If someone comes and nicks your car they are scum right? Yet in comments on the papers, people applaud people who scam payday loan companies. Where's the difference? Or is it ok to steal from the rich as long as they are richer than you?
I wonder how much start up capital you would need to open one of these stores (just a few in "working class" areas) and simply undercut all the others on interest?
Could you actually run a fair one? Or do you have to charge people who can pay the fees a lot to cover the ones who will default?
And if you don't send "the boys round" to recover debt, what stops the public realising you are "soft" and not paying you back?
Hopefully people who have worked in the finance industry can reply to this...
Thanks
So driving through a town near me sometimes (Shotton/Queensferry, Deeside) I note that most of the shops are either permanently closed or shut down completely.
The only shops open are national banks, fast food places (the big chains like Papa Johns) and...payday loan companies like The Money Shop.
So doing some digging on them and seeing the insane profit margins and the new laws etc etc.... now I am wondering.
If you run one of these and you are clearly upfront about the charges, about the 1000+% APR, (£23 paid back over a week on a £20 loan is 1400% APR so not at high as you think) and NO HIDDEN CHARGES, no service charges, no recommending other companies you own to borrow more money off to pay your loan etc (all the unscrupulous stuff)....are you scum?
Furthermore you have to charge a lot to make up for the people who default who never plan to pay it back. You can't prove it, as yet no one has invented commercial grade truth serum, so borrowing money they don't plan to pay back is not illegal (silly). Are people who take out a £2k loan with no intention of paying it back, smart or scum?
Because people view theives as scum. If someone comes and nicks your car they are scum right? Yet in comments on the papers, people applaud people who scam payday loan companies. Where's the difference? Or is it ok to steal from the rich as long as they are richer than you?
I wonder how much start up capital you would need to open one of these stores (just a few in "working class" areas) and simply undercut all the others on interest?
Could you actually run a fair one? Or do you have to charge people who can pay the fees a lot to cover the ones who will default?
And if you don't send "the boys round" to recover debt, what stops the public realising you are "soft" and not paying you back?
Hopefully people who have worked in the finance industry can reply to this...
Thanks
Payday loans are high-risk, high-default, ultra-short-term borrowings. The average loan size is roughly £250 and the average payback time is under 1 month. The average default rate is around 5%. They are designed for poorer people who, rightly or wrongly, live hand to mouth from week to week.
By their structural nature, the payday firms only get a very short period to monetise their loan / investment. If they charge a "normal" interest rate of, say, 5% pa on a £250 loan, they will only make £1 gross profit on that 1-month loan. From that £1 per customer per month, they have to pay buildings, IT systems, staff, and so on. Clearly, the firm will go bust quickly at a 5% rate...
So... the payday firms charge a 1000% pa rate, to clawback some cash in the tiny window available. For example, a £250 loan at 1000% will bring in roughly £200 gross profit in 1 month. That is a much better margin to run a business and keep the lights on.
Another way to look at it, strategically -- the two extremes of banking are to be a high-sum, low-rate bank (Barclays, etc.)... or a low-sum, high-rate bank (Wonga, etc.).
Of course, the main criticism of payday loaners is that they are profiteering exploiters. But consider this... Wonga, the industry's biggest, in its most profitable ever year, made +10% net margin... Meanwhile, Barclays has averaged +11% net margin per annum for the past decade.
Perhaps the biggest scandal is the middle-class sneering at lower-class people taking financial loans. It is socially acceptable for a white-collar to take a barely affordable loan for a house or car... but it is not socially acceptable for a blue-collar to take a barely affordable loan for food or rent. The patronising hypocrisy stinks.
To summarise, for all those who cannot be bothered to read it all -- payday lenders do not make as much profit as you think.
By their structural nature, the payday firms only get a very short period to monetise their loan / investment. If they charge a "normal" interest rate of, say, 5% pa on a £250 loan, they will only make £1 gross profit on that 1-month loan. From that £1 per customer per month, they have to pay buildings, IT systems, staff, and so on. Clearly, the firm will go bust quickly at a 5% rate...
So... the payday firms charge a 1000% pa rate, to clawback some cash in the tiny window available. For example, a £250 loan at 1000% will bring in roughly £200 gross profit in 1 month. That is a much better margin to run a business and keep the lights on.
Another way to look at it, strategically -- the two extremes of banking are to be a high-sum, low-rate bank (Barclays, etc.)... or a low-sum, high-rate bank (Wonga, etc.).
Of course, the main criticism of payday loaners is that they are profiteering exploiters. But consider this... Wonga, the industry's biggest, in its most profitable ever year, made +10% net margin... Meanwhile, Barclays has averaged +11% net margin per annum for the past decade.
Perhaps the biggest scandal is the middle-class sneering at lower-class people taking financial loans. It is socially acceptable for a white-collar to take a barely affordable loan for a house or car... but it is not socially acceptable for a blue-collar to take a barely affordable loan for food or rent. The patronising hypocrisy stinks.
To summarise, for all those who cannot be bothered to read it all -- payday lenders do not make as much profit as you think.
Yipper said:
To summarise, for all those who cannot be bothered to read it all -- payday lenders do not make as much profit as you think.
Spot on about the banks it seems according to recent news. http://www.itv.com/news/2017-02-08/high-street-ban...
I thought I’d tap this into this old thread because despite the title not being suitable the response from Yipper was.
Wonga has gone and now it looks like QuickQuid is going. These operations only came into existence at the end of the 90s as part of Gordon’s massive deregulation of the consumer debt market. Much of what he did was to specifically create a consumer spending boom and to facilitate the use of debt spending to synthesise wage inflation and I have not insignificant issues with what he did in that regard and how it has enpoverished so many victims but the facilitation of payday loan enterprise wasn’t one of them and was arguably done for very good reasons.
Prior to officially regulating payday loans the activity of lending bridging funds to the most vulnerable was partly covered by the pawn industry but in many cases this type of lending was facilitated by the local mafias whose business model obviously worked by reducing the risk of non payment by the application of, threat of physical bodily harm. And like most illicit money lenders the real returns weren’t having a customer repay on time but on helping ensure as many as possible defaulted and began paying additional fees etc.
There’s no doubt that as a civilised society it is smarter for us to recognise that there are many people who live a life that puts them at risk of having no choice but to fall into the hands of gangsters and make the overt decision to put in place a formal system that is regulated and where the customer who is invariably highly vulnerable is not at risk of physical threat or harm etc. In this regard payday loans are important and valuable.
However, with the low net margins being made and the big players struggling it is clear that in reality lending money to individuals who have the lowest ability and lowest likelihood of repaying on time is a hard enough business but also, in that mix of society there are large numbers who without the threat of violence and physical harm see zero incentive to ever repay the loans.
The TV adverts give an image of intelligent, educated workers in nice houses just needing a quick loan because a boiler has broken or a car has. This is very obviously not representative of the real customer. Those who are living that lifestyle who suddenly need quick money and can’t use conventional sources are resorting to payday loans to cover issues such as the forgotten expiry date of a 6 month nothing to pay consumer purchase and have no conventional facilities left available to them as they are maxed out on all other forms of debt. In reality, the average customer is the person on the breadline who has nothing left to pawn. It’s not the person with an average job who is living the dream through credit lines at Dwell but the people living in a parmanent trap of gangster backed landlords and lending and who for the most part are just useless with budgeting or appropriate spending.
It makes you wonder what the true solution is. The payday loan side just hasn’t worked and we certainly don’t want to re-arm the local mafias with customers etc.
I don’t believe that you can ever stop people being useless with money. When you look back through history of any culture there are always those useless with money in with those being oppressed by others. I think any policy that starts out with the aim to cure fecklessness is doomed to fail. There is no cure, it’s genetically within us humans and any policy must be about how to reduce and manage not wasted on idealistic concepts such as cures etc.
Payday loans obviously attracted the gangsters who prey on this level of society, who oppress and terrorise the most vulnerable in society. I can’t help thinking that the FCA yet again made an error based on simply not understanding or caring about how finance works and issued lots of small licenses in the knowledge that these were going to mostly be to local crime enterprises. Maybe at this level when payday loans are so critical to the day to day life of the most vulnerable we shouldn’t have multiple licenses but a single license that is issued to a national entity under a single brand that operates to a set of rules stipulated by the government?
Maybe TV and other forms of advertising should be banned as it is for other financial products that are potentially highly toxic to a group of consumers?
And maybe payday loans should not be available to conventional people who have jobs but have allowed excessive spending of their income to leave them unable to cope with any of life’s guaranteed financial surprises? Maybe it is better for them and their families to enter into bankruptcy long before having to resort to payday loans to keep the mess going even longer and having even deeper ramifications when the inevitable finally happens?
I wonder as well whether switching blue collar and lower income workers from wages to the salary system hasn’t also been partly to blame for a lot of this? Is it remotely sane to force lower income workers to budget on a monthly basis, pushing them into a system which we know has more pitfalls and higher risks of making a budgeting mistake. Should it not be the case that lower rate tax payers should by law be paid weekly, not monthly?
In short, is it time to bring back the wage and to push people to default on debt before ending up using payday loans rather than after?
Wonga has gone and now it looks like QuickQuid is going. These operations only came into existence at the end of the 90s as part of Gordon’s massive deregulation of the consumer debt market. Much of what he did was to specifically create a consumer spending boom and to facilitate the use of debt spending to synthesise wage inflation and I have not insignificant issues with what he did in that regard and how it has enpoverished so many victims but the facilitation of payday loan enterprise wasn’t one of them and was arguably done for very good reasons.
Prior to officially regulating payday loans the activity of lending bridging funds to the most vulnerable was partly covered by the pawn industry but in many cases this type of lending was facilitated by the local mafias whose business model obviously worked by reducing the risk of non payment by the application of, threat of physical bodily harm. And like most illicit money lenders the real returns weren’t having a customer repay on time but on helping ensure as many as possible defaulted and began paying additional fees etc.
There’s no doubt that as a civilised society it is smarter for us to recognise that there are many people who live a life that puts them at risk of having no choice but to fall into the hands of gangsters and make the overt decision to put in place a formal system that is regulated and where the customer who is invariably highly vulnerable is not at risk of physical threat or harm etc. In this regard payday loans are important and valuable.
However, with the low net margins being made and the big players struggling it is clear that in reality lending money to individuals who have the lowest ability and lowest likelihood of repaying on time is a hard enough business but also, in that mix of society there are large numbers who without the threat of violence and physical harm see zero incentive to ever repay the loans.
The TV adverts give an image of intelligent, educated workers in nice houses just needing a quick loan because a boiler has broken or a car has. This is very obviously not representative of the real customer. Those who are living that lifestyle who suddenly need quick money and can’t use conventional sources are resorting to payday loans to cover issues such as the forgotten expiry date of a 6 month nothing to pay consumer purchase and have no conventional facilities left available to them as they are maxed out on all other forms of debt. In reality, the average customer is the person on the breadline who has nothing left to pawn. It’s not the person with an average job who is living the dream through credit lines at Dwell but the people living in a parmanent trap of gangster backed landlords and lending and who for the most part are just useless with budgeting or appropriate spending.
It makes you wonder what the true solution is. The payday loan side just hasn’t worked and we certainly don’t want to re-arm the local mafias with customers etc.
I don’t believe that you can ever stop people being useless with money. When you look back through history of any culture there are always those useless with money in with those being oppressed by others. I think any policy that starts out with the aim to cure fecklessness is doomed to fail. There is no cure, it’s genetically within us humans and any policy must be about how to reduce and manage not wasted on idealistic concepts such as cures etc.
Payday loans obviously attracted the gangsters who prey on this level of society, who oppress and terrorise the most vulnerable in society. I can’t help thinking that the FCA yet again made an error based on simply not understanding or caring about how finance works and issued lots of small licenses in the knowledge that these were going to mostly be to local crime enterprises. Maybe at this level when payday loans are so critical to the day to day life of the most vulnerable we shouldn’t have multiple licenses but a single license that is issued to a national entity under a single brand that operates to a set of rules stipulated by the government?
Maybe TV and other forms of advertising should be banned as it is for other financial products that are potentially highly toxic to a group of consumers?
And maybe payday loans should not be available to conventional people who have jobs but have allowed excessive spending of their income to leave them unable to cope with any of life’s guaranteed financial surprises? Maybe it is better for them and their families to enter into bankruptcy long before having to resort to payday loans to keep the mess going even longer and having even deeper ramifications when the inevitable finally happens?
I wonder as well whether switching blue collar and lower income workers from wages to the salary system hasn’t also been partly to blame for a lot of this? Is it remotely sane to force lower income workers to budget on a monthly basis, pushing them into a system which we know has more pitfalls and higher risks of making a budgeting mistake. Should it not be the case that lower rate tax payers should by law be paid weekly, not monthly?
In short, is it time to bring back the wage and to push people to default on debt before ending up using payday loans rather than after?
Interesting post there DA, as was Yipper's back in 2017.
I know very little about the industry of pay day loans - In fact I only read this post because of the unintentionally caustic thread title!
I've always been staggered at how anyone could pay back these sorts of interest rates. As you said a nice middle class house and the washing machine 'goes'..... but the reality being a single parent, 3 kids and an empty larder!
As a society we have allowed ourselves to be ruled by banks. Allowed banks to control the money supply.
Quote
“If the American people ever allow private banks to control the issue of their currency, first by inflation, then by deflation, the banks…will deprive the people of all property until their children wake-up homeless on the continent their fathers conquered…. The issuing power should be taken from the banks and restored to the people, to whom it properly belongs.” – Thomas Jefferson in the debate over the Re-charter of the Bank Bill (1809)
Perhaps we need a nationalised banking system. Purely as a means of exchange and saving (no loans)
Compare what we have now with how money was viewed by the classical economists
I know very little about the industry of pay day loans - In fact I only read this post because of the unintentionally caustic thread title!
I've always been staggered at how anyone could pay back these sorts of interest rates. As you said a nice middle class house and the washing machine 'goes'..... but the reality being a single parent, 3 kids and an empty larder!
As a society we have allowed ourselves to be ruled by banks. Allowed banks to control the money supply.
Quote
“If the American people ever allow private banks to control the issue of their currency, first by inflation, then by deflation, the banks…will deprive the people of all property until their children wake-up homeless on the continent their fathers conquered…. The issuing power should be taken from the banks and restored to the people, to whom it properly belongs.” – Thomas Jefferson in the debate over the Re-charter of the Bank Bill (1809)
Perhaps we need a nationalised banking system. Purely as a means of exchange and saving (no loans)
Compare what we have now with how money was viewed by the classical economists
Edited by alfaspecial on Saturday 26th October 09:34
alfaspecial said:
As a society we have allowed ourselves to be ruled by banks. Allowed banks to control the money supply.
Quote
“If the American people ever allow private banks to control the issue of their currency, first by inflation, then by deflation, the banks…will deprive the people of all property until their children wake-up homeless on the continent their fathers conquered…. The issuing power should be taken from the banks and restored to the people, to whom it properly belongs.” – Thomas Jefferson in the debate over the Re-charter of the Bank Bill (1809)
Perhaps we need a nationalised banking system. Purely as a means of exchange and saving (no loans)
Compare what we have now with how money was viewed by the classical economists
Sounds like you'd be interested in a project called Bitcoin Quote
“If the American people ever allow private banks to control the issue of their currency, first by inflation, then by deflation, the banks…will deprive the people of all property until their children wake-up homeless on the continent their fathers conquered…. The issuing power should be taken from the banks and restored to the people, to whom it properly belongs.” – Thomas Jefferson in the debate over the Re-charter of the Bank Bill (1809)
Perhaps we need a nationalised banking system. Purely as a means of exchange and saving (no loans)
Compare what we have now with how money was viewed by the classical economists
DonkeyApple said:
I
I wonder as well whether switching blue collar and lower income workers from wages to the salary system hasn’t also been partly to blame for a lot of this? Is it remotely sane to force lower income workers to budget on a monthly basis, pushing them into a system which we know has more pitfalls and higher risks of making a budgeting mistake. Should it not be the case that lower rate tax payers should by law be paid weekly, not monthly?
Most bills are monthly so it's actually easier to budget that way. There are plenty of low paid workers perfectly capable of budgeting, and plenty of people on £100k plus relying on bonuses to keep afloat.I wonder as well whether switching blue collar and lower income workers from wages to the salary system hasn’t also been partly to blame for a lot of this? Is it remotely sane to force lower income workers to budget on a monthly basis, pushing them into a system which we know has more pitfalls and higher risks of making a budgeting mistake. Should it not be the case that lower rate tax payers should by law be paid weekly, not monthly?
DonkeyApple said:
I thought I’d tap this into this old thread because despite the title not being suitable the response from Yipper was.
Wonga has gone and now it looks like QuickQuid is going. These operations only came into existence at the end of the 90s as part of Gordon’s massive deregulation of the consumer debt market. Much of what he did was to specifically create a consumer spending boom and to facilitate the use of debt spending to synthesise wage inflation and I have not insignificant issues with what he did in that regard and how it has enpoverished so many victims but the facilitation of payday loan enterprise wasn’t one of them and was arguably done for very good reasons.
Prior to officially regulating payday loans the activity of lending bridging funds to the most vulnerable was partly covered by the pawn industry but in many cases this type of lending was facilitated by the local mafias whose business model obviously worked by reducing the risk of non payment by the application of, threat of physical bodily harm. And like most illicit money lenders the real returns weren’t having a customer repay on time but on helping ensure as many as possible defaulted and began paying additional fees etc.
There’s no doubt that as a civilised society it is smarter for us to recognise that there are many people who live a life that puts them at risk of having no choice but to fall into the hands of gangsters and make the overt decision to put in place a formal system that is regulated and where the customer who is invariably highly vulnerable is not at risk of physical threat or harm etc. In this regard payday loans are important and valuable.
However, with the low net margins being made and the big players struggling it is clear that in reality lending money to individuals who have the lowest ability and lowest likelihood of repaying on time is a hard enough business but also, in that mix of society there are large numbers who without the threat of violence and physical harm see zero incentive to ever repay the loans.
The TV adverts give an image of intelligent, educated workers in nice houses just needing a quick loan because a boiler has broken or a car has. This is very obviously not representative of the real customer. Those who are living that lifestyle who suddenly need quick money and can’t use conventional sources are resorting to payday loans to cover issues such as the forgotten expiry date of a 6 month nothing to pay consumer purchase and have no conventional facilities left available to them as they are maxed out on all other forms of debt. In reality, the average customer is the person on the breadline who has nothing left to pawn. It’s not the person with an average job who is living the dream through credit lines at Dwell but the people living in a parmanent trap of gangster backed landlords and lending and who for the most part are just useless with budgeting or appropriate spending.
It makes you wonder what the true solution is. The payday loan side just hasn’t worked and we certainly don’t want to re-arm the local mafias with customers etc.
I don’t believe that you can ever stop people being useless with money. When you look back through history of any culture there are always those useless with money in with those being oppressed by others. I think any policy that starts out with the aim to cure fecklessness is doomed to fail. There is no cure, it’s genetically within us humans and any policy must be about how to reduce and manage not wasted on idealistic concepts such as cures etc.
Payday loans obviously attracted the gangsters who prey on this level of society, who oppress and terrorise the most vulnerable in society. I can’t help thinking that the FCA yet again made an error based on simply not understanding or caring about how finance works and issued lots of small licenses in the knowledge that these were going to mostly be to local crime enterprises. Maybe at this level when payday loans are so critical to the day to day life of the most vulnerable we shouldn’t have multiple licenses but a single license that is issued to a national entity under a single brand that operates to a set of rules stipulated by the government?
Maybe TV and other forms of advertising should be banned as it is for other financial products that are potentially highly toxic to a group of consumers?
And maybe payday loans should not be available to conventional people who have jobs but have allowed excessive spending of their income to leave them unable to cope with any of life’s guaranteed financial surprises? Maybe it is better for them and their families to enter into bankruptcy long before having to resort to payday loans to keep the mess going even longer and having even deeper ramifications when the inevitable finally happens?
I wonder as well whether switching blue collar and lower income workers from wages to the salary system hasn’t also been partly to blame for a lot of this? Is it remotely sane to force lower income workers to budget on a monthly basis, pushing them into a system which we know has more pitfalls and higher risks of making a budgeting mistake. Should it not be the case that lower rate tax payers should by law be paid weekly, not monthly?
In short, is it time to bring back the wage and to push people to default on debt before ending up using payday loans rather than after?
A lot of sensible stuff but having owned a payday company and still being involved at investor level, I can correct some points: Wonga has gone and now it looks like QuickQuid is going. These operations only came into existence at the end of the 90s as part of Gordon’s massive deregulation of the consumer debt market. Much of what he did was to specifically create a consumer spending boom and to facilitate the use of debt spending to synthesise wage inflation and I have not insignificant issues with what he did in that regard and how it has enpoverished so many victims but the facilitation of payday loan enterprise wasn’t one of them and was arguably done for very good reasons.
Prior to officially regulating payday loans the activity of lending bridging funds to the most vulnerable was partly covered by the pawn industry but in many cases this type of lending was facilitated by the local mafias whose business model obviously worked by reducing the risk of non payment by the application of, threat of physical bodily harm. And like most illicit money lenders the real returns weren’t having a customer repay on time but on helping ensure as many as possible defaulted and began paying additional fees etc.
There’s no doubt that as a civilised society it is smarter for us to recognise that there are many people who live a life that puts them at risk of having no choice but to fall into the hands of gangsters and make the overt decision to put in place a formal system that is regulated and where the customer who is invariably highly vulnerable is not at risk of physical threat or harm etc. In this regard payday loans are important and valuable.
However, with the low net margins being made and the big players struggling it is clear that in reality lending money to individuals who have the lowest ability and lowest likelihood of repaying on time is a hard enough business but also, in that mix of society there are large numbers who without the threat of violence and physical harm see zero incentive to ever repay the loans.
The TV adverts give an image of intelligent, educated workers in nice houses just needing a quick loan because a boiler has broken or a car has. This is very obviously not representative of the real customer. Those who are living that lifestyle who suddenly need quick money and can’t use conventional sources are resorting to payday loans to cover issues such as the forgotten expiry date of a 6 month nothing to pay consumer purchase and have no conventional facilities left available to them as they are maxed out on all other forms of debt. In reality, the average customer is the person on the breadline who has nothing left to pawn. It’s not the person with an average job who is living the dream through credit lines at Dwell but the people living in a parmanent trap of gangster backed landlords and lending and who for the most part are just useless with budgeting or appropriate spending.
It makes you wonder what the true solution is. The payday loan side just hasn’t worked and we certainly don’t want to re-arm the local mafias with customers etc.
I don’t believe that you can ever stop people being useless with money. When you look back through history of any culture there are always those useless with money in with those being oppressed by others. I think any policy that starts out with the aim to cure fecklessness is doomed to fail. There is no cure, it’s genetically within us humans and any policy must be about how to reduce and manage not wasted on idealistic concepts such as cures etc.
Payday loans obviously attracted the gangsters who prey on this level of society, who oppress and terrorise the most vulnerable in society. I can’t help thinking that the FCA yet again made an error based on simply not understanding or caring about how finance works and issued lots of small licenses in the knowledge that these were going to mostly be to local crime enterprises. Maybe at this level when payday loans are so critical to the day to day life of the most vulnerable we shouldn’t have multiple licenses but a single license that is issued to a national entity under a single brand that operates to a set of rules stipulated by the government?
Maybe TV and other forms of advertising should be banned as it is for other financial products that are potentially highly toxic to a group of consumers?
And maybe payday loans should not be available to conventional people who have jobs but have allowed excessive spending of their income to leave them unable to cope with any of life’s guaranteed financial surprises? Maybe it is better for them and their families to enter into bankruptcy long before having to resort to payday loans to keep the mess going even longer and having even deeper ramifications when the inevitable finally happens?
I wonder as well whether switching blue collar and lower income workers from wages to the salary system hasn’t also been partly to blame for a lot of this? Is it remotely sane to force lower income workers to budget on a monthly basis, pushing them into a system which we know has more pitfalls and higher risks of making a budgeting mistake. Should it not be the case that lower rate tax payers should by law be paid weekly, not monthly?
In short, is it time to bring back the wage and to push people to default on debt before ending up using payday loans rather than after?
1. It was IT companies that ruled the industry, not 'mafia' types. Wonga et al were IT enterprises with little knowledge at first about finance. It was simply an IT solution that found it could go wild, initially. While there are some decidedly dodgy players around, it is not easy to launder money this way. Huge regulation - did you know that every single transaction is reported to the FCA every 3 months?
2.Payday Lenders are far more likely to write loans off than send around the heavies - if they need debt collectors, they just sell the debt, they don't want anything to do with it if it gets messy.
3. It is more difficult for truly vulnerable people to borrow now. Not saying none will get funded, but nothing like it used to be. I funded people on £5000 plus per month clear who just overspent but were easily able to repay the following month. Obviously, they weren't serial borrowers (certainly not trying to launder that way) nor using loans to repay other loans.
4. Yipper above used an example of £200 profit on a £200 loan. No, maximum is £48 interest over 1 month, since well before 2017. Profit is lower when all costs are added up.
5. It is illegal to lend to anyone who is vulnerable. If someone is using loans to live - i.e a cycle of increasing debt - then Lenders would lose their licenses if caught.
Short term loans were horrifically abused by companies who took advantage of near zero regulation. That isn't the case now. The large lenders that took advantage are now repaying some back - albeit they only absorb so much before simply shutting down and re-opening as a new lender. There are plenty of countries for them to work in, Brazil and Spain are good options for unregulated lending. The money behind the lenders just moves accordingly. The UK regulated market is still profitable, as is the strict US and Canadian markets, but unlike PPI where banks had to repay every penny, small investment vehicles - often pension investment - just move on.
The FCA have cleaned up the sector hugely and they aren't finished, lots of new regulation coming in.
Payday loan adverts seem to be getting replaced with 'credit score check' adverts. I suspect the two connect but it's too early for me to figure it out...
This message is simple - raise the number, get a better car: https://www.youtube.com/watch?v=LoZTW-0Qygc
This message is simple - raise the number, get a better car: https://www.youtube.com/watch?v=LoZTW-0Qygc
alfaspecial said:
Interesting post there DA, as was Yipper's back in 2017.
I know very little about the industry of pay day loans - In fact I only read this post because of the unintentionally caustic thread title!
I've always been staggered at how anyone could pay back these sorts of interest rates. As you said a nice middle class house and the washing machine 'goes'..... but the reality being a single parent, 3 kids and an empty larder!
As a society we have allowed ourselves to be ruled by banks. Allowed banks to control the money supply.
Quote
“If the American people ever allow private banks to control the issue of their currency, first by inflation, then by deflation, the banks…will deprive the people of all property until their children wake-up homeless on the continent their fathers conquered…. The issuing power should be taken from the banks and restored to the people, to whom it properly belongs.” – Thomas Jefferson in the debate over the Re-charter of the Bank Bill (1809)
Perhaps we need a nationalised banking system. Purely as a means of exchange and saving (no loans)
Compare what we have now with how money was viewed by the classical economists
I think it is important to understand that the banks have nothing to directly do with this. It is 100% political. I know very little about the industry of pay day loans - In fact I only read this post because of the unintentionally caustic thread title!
I've always been staggered at how anyone could pay back these sorts of interest rates. As you said a nice middle class house and the washing machine 'goes'..... but the reality being a single parent, 3 kids and an empty larder!
As a society we have allowed ourselves to be ruled by banks. Allowed banks to control the money supply.
Quote
“If the American people ever allow private banks to control the issue of their currency, first by inflation, then by deflation, the banks…will deprive the people of all property until their children wake-up homeless on the continent their fathers conquered…. The issuing power should be taken from the banks and restored to the people, to whom it properly belongs.” – Thomas Jefferson in the debate over the Re-charter of the Bank Bill (1809)
Perhaps we need a nationalised banking system. Purely as a means of exchange and saving (no loans)
Compare what we have now with how money was viewed by the classical economists
Edited by alfaspecial on Saturday 26th October 09:34
The banks were regulated out of certain consumer markets so people simply couldn’t borrow. Regulation prevented banks from over lending against property, it prevented complex borrowing for cars. Regulation prevented almost all forms of consumer debt.
Banks never decided to remove this regulation. The regulation was imposed on the act of lending by governments because we all know and fully understand the risks to social stability of money lending.
It was government who removed the regulation. It started under Thatcher and was accelerated massively under Blair and Brown. The reason? To artificially create and spending boom, boost tax receipts and make everyone feel wealthier and so happier etc etc.
All the banks have done is what they are supposed to do which is to compete against each other, within the regulatory framework, to make as much profit as possible.
Dr Jekyll said:
Most bills are monthly so it's actually easier to budget that way. There are plenty of low paid workers perfectly capable of budgeting, and plenty of people on £100k plus relying on bonuses to keep afloat.
Absolutely but bills have only gone monthly at that level because wages were replaced by salaries but it clearly doesn’t work for many and is obviously a problem that can be partially resolved by bringing budgeting back to a weekly timeframe rather than monthly and if people were paid weekly then billing would switch back to weekly very easily. As for higher income earners who live from month to month, we must not concern ourselves with them. It is their choice and they can deal with any consequences of their actions. They are adults choosing not to save of be prudent. We should only concern ourselves with those who have no choice and how best as a society we serve them.
The Wonga/Quick Quid model is one thing, but the one that gets me is Amigo. Lend to a high risk client at a high rate, but have the loan guaranteed by someone at low risk.... the worst of both worlds (for the customers). I can only see the business model having a finite lifespan, and am kicking myself I didn't try to short the shares when they were mid 200s (now sitting at 76!)
DonkeyApple said:
I don’t believe that you can ever stop people being useless with money. When you look back through history of any culture there are always those useless with money in with those being oppressed by others. I think any policy that starts out with the aim to cure fecklessness is doomed to fail.
I think you're right up to a point, but couldn't education go a long way to addressing this? If children were taught from a young age about managing finances, how debt works and how you can use it safely and so on, then they'd be much better informed. As things stand, I suspect most people learn about money from their family and their peers. If you grow up surrounded by people who don't understand anything more complicated than a monthly payment, what hope is there for you?
MajorMantra said:
I think you're right up to a point, but couldn't education go a long way to addressing this? If children were taught from a young age about managing finances, how debt works and how you can use it safely and so on, then they'd be much better informed.
As things stand, I suspect most people learn about money from their family and their peers. If you grow up surrounded by people who don't understand anything more complicated than a monthly payment, what hope is there for you?
Couldn’t agree more. Finance is as important as maths and English. As things stand, I suspect most people learn about money from their family and their peers. If you grow up surrounded by people who don't understand anything more complicated than a monthly payment, what hope is there for you?
egomeister said:
The Wonga/Quick Quid model is one thing, but the one that gets me is Amigo. Lend to a high risk client at a high rate, but have the loan guaranteed by someone at low risk.... the worst of both worlds (for the customers). I can only see the business model having a finite lifespan, and am kicking myself I didn't try to short the shares when they were mid 200s (now sitting at 76!)
It’s difficult that one. On the surface, as a lender, you are partially filtering out the most feckless as well as limiting your recovery costs by supposedly only takingnon clients who have someone who knows them well enough to underwrite the risk and who is sufficiently solvent etc. I’m sure the flip side is that it is open to abuse somehow.
Simpo Two said:
Payday loan adverts seem to be getting replaced with 'credit score check' adverts. I suspect the two connect but it's too early for me to figure it out...
This message is simple - raise the number, get a better car: https://www.youtube.com/watch?v=LoZTW-0Qygc
I'd been wondering about this too.This message is simple - raise the number, get a better car: https://www.youtube.com/watch?v=LoZTW-0Qygc
I'm lucky, it's not an issue for me, but I don't understand why anyone would be that concerned about their credit score.
What's in it for the companies involved?
b
hstewie said:
hstewie said:Simpo Two said:
Payday loan adverts seem to be getting replaced with 'credit score check' adverts. I suspect the two connect but it's too early for me to figure it out...
This message is simple - raise the number, get a better car: https://www.youtube.com/watch?v=LoZTW-0Qygc
I'd been wondering about this too.This message is simple - raise the number, get a better car: https://www.youtube.com/watch?v=LoZTW-0Qygc
I'm lucky, it's not an issue for me, but I don't understand why anyone would be that concerned about their credit score.
What's in it for the companies involved?
It’s brilliant. You get everyone focussed on a set of numbers between 500 and 1000 etc and then get them hooked on making that number bigger as bigger is better. I assume they offer to help clean up your score?
As for the payday stuff disappearing from TV it might just be that the typical client is generally acquired more efficiently via other means such as social media? It could also be that the backing capital has moved on from payday lending and is backing the credit score firms instead?
DonkeyApple said:
egomeister said:
The Wonga/Quick Quid model is one thing, but the one that gets me is Amigo. Lend to a high risk client at a high rate, but have the loan guaranteed by someone at low risk.... the worst of both worlds (for the customers). I can only see the business model having a finite lifespan, and am kicking myself I didn't try to short the shares when they were mid 200s (now sitting at 76!)
It’s difficult that one. On the surface, as a lender, you are partially filtering out the most feckless as well as limiting your recovery costs by supposedly only takingnon clients who have someone who knows them well enough to underwrite the risk and who is sufficiently solvent etc. I’m sure the flip side is that it is open to abuse somehow.
Gassing Station | Finance | Top of Page | What's New | My Stuff