Payday loans invoke almost as much argument as the merits or otherwise of Mrs Thatcher’s political legacy. Daytime television and some sections of our, mainly tabloid, press are full of adverts for loans with interest rates that often run into the thousands if not the tens of thousands percentage Annual Percentage Rate points. And this at a time when the Bank of England Base lending rate is stuck at 0.5%.
We need to have them, we’re told, mainly by those who are selling them, because they make cash available to people who have no other means of accessing it. And they say it as if they’re carrying out some sort of social service. It’s not. It’s a money-making machine, and one that preys on the weak and vulnerable in our society at a time when our mainstream bankers have given up on doing anything that doesn’t have ‘bolstering up our balance sheet’ as the top priority.
The payday loans apologists tell us that they offer a facility for those who need short term access to cash, and that the APR rates that are quoted aren’t accurate because they only apply if the money is borrowed for a full year and their loans are all arranged over shorter timescales. That may be the case in the first instance, but much of the evidence suggests that many of these loans are being rolled- over at least once and sometimes more often. This has the effect of making them look more like a ‘regular’ loan, and the quoted APR rates will start to be not too far from the truth.
And if that is the case then these rates need to be capped. Legislation needs to be put in place to control the lending practices of our main payday lenders, and it needs to happen now.
Of course there are lots of people need access to money, and that access, where it is justified, should be made available by low cost loans offered by our Credit Union Network. Much more should be made of the network of Credit Unions that run the length and breadth of the country. They have, in the past, been hampered by restrictive growth, membership and advertising rules but they engender a level of trust these days that most mainstream bank can only dream of.
And the banks should be forced to lend. That is one of their main purposes and we are at least part-owners of many of them today so they should be put to work helping us.
Debt is not evil. Most of us will borrow at some time in our lives, and most of us will do it without any problems. It becomes unmanageable when circumstances changes and what was affordable one day becomes unaffordable the next. People need to understand that, and the way to do that, and to help us all use our money more effectively is through an education programme that starts in the schools. Only then will we really develop a relationship with our money, and be able to take control of it rather than letting it control us.