YES, says Volunteer Robin Peake, who is promoting the Oxford Credit Union to Barton residents:
WHEN I spoke to him, he was nearly in tears. He was in debt to five different payday lenders, owing them £1,800. That same day, he’d received his wage packet which was less than he was owed after a timesheet error by his boss. Just 19 years old, the banks wouldn’t help him. He didn’t know what to do.
When I told him the price difference between a payday loan and a loan from his local credit union, he was amazed. Borrowing £100 from the credit union will cost its members £2 in interest over 30 days. But borrow the same amount from Wonga, and you'll have to pay £137.15 in a month’s time.
In 2008/9, the payday lending industry was worth £900 million. Three years later it more than doubled to £2.2 billion. And this will have increased even more since, with Wonga alone reporting £1.2 billion of loans over a 12 month period, an increase of 68 per cent on the previous year.
Payday lenders’ profits are soaring because in 41 of the last 42 months, prices have risen faster than wages in Britain. So the Government needs to take responsibility and do more to rein in the industry that is helping people to stay in debt.
Payday lenders will say that legislation will only drive people to illegal loan sharks. But consider this: when last year the Office of Fair Trading (OFT) went to 50 leading payday lenders, accounting for 90 per cent of the market giving each 12 weeks to prove they were playing legally – 19 left the market completely, and the OFT is still looking into the suspected malpractices of 21.
Last week the OFT said a further four payday lenders have closed after receiving evidence from the Citizens Advice Bureau (CAB). Which begs the question, how legal were all these lenders in the first place?
But it’s not just national Government which has a role to play in curbing payday lenders. Oxfordshire County Council has a responsibility also.
I’m worried by proposals to cut the council’s budget for the CAB, which acts as a conscience in the murky world of finance providing a vital source of support for many with money problems.
NO, says Russell Hamblin-Boone, chief executive at the Consumer Finance Association:
Payday lenders evoke a passionate response and it’s far too easy to blame them for all the problems of the recession.
But with a new set of regulations about to come into force, I think short-term loans from responsible lenders have a positive role to play and that the rogues who give the industry a bad name are on borrowed time.
Few industries have faced such intense scrutiny over such a short period of time. However despite the pressure of growing up in the glare of the public spotlight, the major short-term lenders that I represent have been openly engaged in all of the studies and inquiries that the Government and regulators have initiated and we have been proactive in addressing concerns.
We have also been actively debating the issues in public and working closely, not only with the Government and the regulator, but also with leading debt charities and consumer groups to raise standards and ensure consumers benefit from flexible access to short-term credit, wrapped in multiple layers of protection.
Critics of the market are not its customers: while just four per cent of the population have used payday loans 96 per cent have a strong opinion about them.
Of course, there are still rogue lenders operating in the market place and we are fully behind the regulator’s plans to drive out such practice.
But this is not the experience of most people, who value the convenience and transparency of short-term loans to help manage tight budgets.
Reputable lenders are responsible. The fact that the vast majority of people who use their loans pay back on time, is testament.Responsible lenders conduct the same checks before approving a loan as any other financial services provider. Anyone borrowing over a short period can find changes in circumstances difficult.
The lenders I represent have a voluntarily cap on the number of times a loan can be rolled over.
They freeze fees and interest if people are in financial difficulty and refer people to free debt advice.
Please don’t make judgments based on extreme examples in the media.