I’m early, I know, but this is a topic which for me could turn into a real rant…
And this is why….
Three weeks ago the Office for Fair Trading said on their website that it is giving the leading 50 payday lenders, who make up 90 per cent of the market, 3 months to change their business practices or risk losing their licences. The OFT said it uncovered widespread irresponsible lending and failure to comply with standards. So much so that they’ve been told to change their ways.
The report said there were problems throughout the entire lifecycle of payday loans, from advertising through to debt collection, and all across the sector, including by leading lenders that are members of established trade associations.
The OFT’s report cited the following areas of non-compliance:
- lenders failing to conduct adequate assessments of affordability before lending or rolling over loans (lend today, worry about getting it back tomorrow – haven’t we been here before?)
- failing to explain adequately how payments will be collected (an education issue – when are we going to teach our kids to understand how money works?)
- using aggressive debt collection practices (well we all knew that, but just wait until they sell on the debts they can’t collect – they won’t be selling them on to cuddly debt collectors)
- not treating borrowers in financial difficulty with forbearance (see 1).
None of this should come as any surprise to any of us.
What really angers me though is how a good many of these and similar lenders to the vulnerable use celebrities to endorse their products… to suggest that somehow because someone who’s in the public eye, but knows nothing about what they are talking about, promotes their product, it’s all ok, that’s it’s all legit.
Let’s look at some of the celebrities endorsing the payday, pawn broking and consolidation loan companies:
Nicholas Parsons and those annoying puppets – Wonga (APR 4,214%)
Carole Vorderman – Firstplus, click here
Kerry Katona – surely the ultimate in irony, she’s been personally bankrupt – nothing wrong with that but why oh why would she come out now after bankruptcy and encourage others to borrow? (sorry, I suspect we’ve got the answer there?) – Cash Lady (APR 2,670%) – click here for her cheesy advert and here for a written interview (it’s priceless, apparently she’s a normal Joanne in the street with everyday bills to pay, like school fees and nannies!)
David Dickinson – The Money Shop (go on, I dare you, click on this, turn the volume up, but make sure you’ve a bucket handy).
The worst? Difficult choice, all the wide toothy smiles, cheesy straplines, bright blue eyes, sunshine, young good looking mums doing normal things yet worrying about trying to make ends meet, the sexiness of and ease of taking out a lone….mmm, now let’s see…. my vote goes to a firm of pawnbrokers who use a talking sock to sell its loans – click here. Yuk!
I’ve been talking in schools a lot recently, warning against the perils of payday loans – the ease with which money can be borrowed compared to how difficult it is paying them off. You see lending to the vulnerable is big business, about 7 million new payday loans are taken out every year. And the numbers and volume of loans are growing.
When I talk to the kids I point out that although the adverts for payday loans suggest they are take out to cover emergencies – car repair, water leak, computer drink spillage, that sort of stuff – that’s not what they are used for in reality – they are used to bridge short term gaps in normal day to day spending …you know when you’ve too much month left at the end of your money…
I also teach them that interest on payday loans runs on average at £25 for every £100 loaned for 30 days. Yes, £25 for each £100…for just 30 days. Can I make a suggestion?
..that the next time you walk along your local High Street past one of these shops, you stop and look in their window at their terms. But make sure that you do a few stretches and bends first as you’ll find them on a pop up banner at or below knee height…in very small typeface…below the smiley, cheesy grins in the advert above. So don’t forget to take your glasses and the Voltarol.
The OFT report went on to say that up to half of payday lenders’ revenue comes from loans that last longer than a month. You see most loans are rolled over or refinanced, several times over. So it’s not £25 for every £100 loaned, it’s much much more.
I just love that Wonga advert on television, don’t you? Next time it’s on, listen carefully. They make a big, and positive, thing that one quarter of their customers repay their loan in full and within time.
Putting to one side the fact that if you were charged over 4,000% interest, you’d do your very best to repay it in full and on time, isn’t that great news that so many people settle ‘early’?
No, not at all…
You see, I say when I go into schools, ‘flip it, that means that three quarters of people, that’s three times as many people, don’t repay on time as do’. It’s advertising talk, turning a huge negative into a positive, hoping that no one notices. And most don’t.
So perhaps it’s not surprising that Wonga’s accounts for 2011 showed it made a profit of £44m on turnover of £184m? Not a bad profit for a business which is obviously having to spend a lot of money trying to capture market share…
I wonder just how great a business Wonga and the other payday lenders would have if people used the loans for what they were (arguably) designed for? Or if interest rates were more reasonable? But then again, their profits are assured for years to come because of bad education, human gullibility and fallibility!
But there’s another point…
Perhaps we ought to be asking ourselves more just what sort of world we are bringing our children in to?
A good many of people I know who live abroad have told me their views of the UK… that the only growth area we have is in debt. What a sad indictment of the land we live in, the times we’ve created.
Perhaps we ought to be asking our MPs why they are doing absolutely nothing about the horrendously high interest rates payday lenders charge the most vulnerable members of our society? And why more time and resources are not being given to improving our children’s financial education?
I know of several insolvency practitioners who are preparing to upset the payday lenders’ rates as an ‘extortionate credit transaction’ under the Insolvency Act – something they can do after the borrower has gone into bankruptcy. The problem is the very trigger for doing so means the insolvency practitioner typically has no money to fund an action – it could be a case of David v Goliath – on something that’s a matter of principle for the lender but has a small effect in the bankruptcy in terms of its impact on creditor dividends. But wouldn’t it be great if, for the first time in a long time, the insolvency profession were to take a moral stance that those in powers and Joe and Joanne Public aren’t overly interested in? Then, perhaps the public may not be as shocked as we are by the level of debt people and this country are in.
If however, you feel as I do that something just has to be done about these payday lenders, how they operate and use celebrities’ ‘good names’ and ‘mis-information’ to promote their products, why not write to your local MP – here’s how you find their details.
By the way, we’re quieter on the formal insolvency front than we have been for a good while – this isn’t a bad thing because we’re doing far more ‘positive’ work right now. But what it does mean is that we have spare capacity for any liquidations, administrations and receiverships you may need carrying out. Which of your clients are struggling so badly that they either need to call it a day or lose debt?
I’d really appreciate your feedback, good or bad, on my e-mails.
Midlands Business Recovery
‘Doing more for Black Country Businesses’