With the Bank of England slashing rates towards zero you might think that typical APRs would have fallen too. Yet instead they range from 1351,7% to 9889,3% -- yes that really does read 10,000% APR. The big conclusion here is that lack of competition in the Payday credit market has led to many of the poorest people paying unbelievably high interest rates.
David Cameron has been warning about the massive rise in personal debt since well before Labour’s recession hit, but if the government thinks that the problem will be solved by lower official interest rates then this report shows that they are very mistaken. That’s why we are calling for the creation of a free National Finance Advice Service, for greater use of Credit Unions which help with saving as well as borrowing and for greater competition in the Payday lending market.
Indeed the most startling thing about this industry is that if you look at the biggest 5 lenders they all offer precisely the same APR on £200 borrowed over 31 days. It cannot be a coincidence that they all quote a staggering, yet precise 1286.10% APR. This is a clear indication that the market is not operating openly here, so we will force these companies to share data about individuals' credit performance, so that consumers are able to switch between companies without losing their credit history and this will force down rates.
This is a good initiative by Shapps. These loan sharks really are the scum of the earth - real bottomfeeders. They prey on the weak and vulnerable and it is up to government to put every obstacle possible in their way. They've got away with daylight robbery for too long.
UPDATE: Dizzy has more HERE.
25 comments:
I have always wondered how these scumbags get away with preying on the weak. Credit to Shapps for exposing them for what they are.
He also demonstrates quite clearly that Labour are NOT the party of the poor and downtrodden. That mantle now sits very comfortably with Daves Conservatives.
Shapps also did that homeless thing a while back, and he campaigned about removing innocent people from teh DNA database.
One to watch methinks, he certainly has excellent political antennae.
It is a good initiative and I don't want to take away from it, but it's hardly new and it doesn't cover everything.
Angela Eagle was talking about this at the end of last year.
The six companies mentioned by Shapps, while I hardly approve of them, aren't the worst of the lot. They at least have credit licenses; many of the worst sharks do not and are happy to use violence. BERR/DTI have been looking at that for some years - at least four, it would seem.
Shapps suggests three remedial measures - more competition in the market, greater use of credit unions and a national advice service. The last would be financed by a tax on the financial services sector (total £50m per year); credit unions I think are a very good idea. More people offering apparently easy credit might not be a great idea. Greater funding for crisis & budgeting loans might be an idea, too.
Dave Cole is right.
Strictly speaking, loan sharks are informal doorstep lenders who casually threaten violence, not these companies.
Point taken though.
I recently had a motion before Aberdeen City Council calling on the government to investigate and more strictly regulate these high interest loan companies.
I must fess up that I didn't come across such high APR rates when doing my research.
The government should be doing more to promote Credit Unions to people who are in dire straits. That way they can get a more ethical loan, while at the same time being given the chance to start saving money.
I'm not holding my breath on this one...
The whole loan shark thing isn't as clear cut as it seems.
Good research but bad recommendations. Socialist as usual: regulation and forcing companies to do x rarely has the desired effect. In this case, it would probably shift the market from licensed to unlicensed operators, putting interest rates up further.
What is really needed is a break up of the big banks (RBS/NatWest, Lloyds/Halifax/HBOS). They told their shareholders and the govt that by being bigger and centralising they could offer better profits and lending decisions. The opposite has happened.
Instead of using whizz kids at spreadsheets based in the city, they should be using local bank managers equiped with a mark 1 eyeball.
Fix the problems with the big, oligopolistic banks and you will solve many of the problems with the small lenders too.
What stands out for me is this!
After eleven years of Labour supposedly looking after the poorest in society they have done a truley misrable job & that's putting it lightly!
The poorest are constantly being ripped off by those with money at EVERY turn, nothing in eleven years has changed.
The saying "the rich get richer & the poor get poorer" is certainly the case with Labour running things.
Labour!
what a bunch of lentil crunching out for themselves, champange champagne drinking socialists.
Let's hope the poorest in society recognise Labour aren't for them.
I am in favour of anti-cartel actions and for transparency.
However, any attempt to cap rates will be counter productive so I hope that concept will not end up in the final proposals. Trying to "control" is Labour bread and butter, and I suspect they will grab at rate capping and shove it in, even though common sense says no.
Have you seen these adds on Facebook as well offering loans up to £750. The catch is you have to pay £25 on every £100 pound you borrow when you get your pay check.
The worst bit though is when they try and compare it to conventional loans over a longer period pointing out their actual interest over the time period is much lower than a conventional loan. never mind that their loan is only for a month and their APR is 1845%
I don't mind the idea in principle as the people taking the loans can be poorly served by conventional means but trying to dress it up like that you're getting a good deal, not so cool
One of the most worrying things about this is that as the Banks continue not to lend at all, the only people with ready cash are the crooks who will profit massively from the present position.
If people voluntarily enter a contract with 10000% interest then that is none of your business. Only if the loan sharks threaten violence should the government intervene.
Are you referring to the high street banks who charge a £30 fee if an account goes into unauthorised overdraft by 30p?
Simple problem with this - a crackdown will make things worse:
Crackdown -> increased risk for loan sharks -> they seek even higher returns to offset the risk -> they raise rates even more.
At the margin you may get a few for whom going without the loan is better than the higher rates, but in general I suspect most will continue because the consequences are too high.
Instead of calling for more regulation, more government intervention, the Tories should embrace the free market (for once) and allow voluntary exchange. Remove the banking monopoly and stop trying to control things.
Although I agree in lots of ways with this initiative, let's look at it a bit less hysterically.
The report gives examples. There are charges of £50 applied to a 200 loand for 31 days. These charges are really an admin fee plus interest. Say it is all fee. Is £50 the right price for this service?
Do you also realise that these are the same APRs levied by the high street banks on unauthorised overdrafts and bounced payments?
Look at this another way. Labour has screwed the poorest. They always do and they have done it again. They principally do this by screwing the economy which always hits low income people the hardest. They then have to resort to these sorts of credit or if they go o/d unauthorised they get charged the same by the banks.
The real issue with this is how the connection is made between Browns failures and these types of service.
BTW these companies are not loan sharks. they are legitimate businesses providing a service that clearly some people use. Loan sharking is illegal lending where recovery is usually by large men with baseball bats.
'This is a good initiative by Shapps. These loan sharks really are the scum of the earth - real bottomfeeders. They prey on the weak and vulnerable and it is up to government to put every obstacle possible in their way. They've got away with daylight robbery for too long.'
I hate Banks too !
Typical bollocks.
Loans are getting harder to get for this class of borrower.
Regulate and make it worse.
I agree the rates are prohibtive BUT... no real competition is not going to be resolved when credit is hard to get.
...and a 'National -(ised) Financial Advice Service. This is bonkers, as bonkers as Browns currently regulatory system.
The current FS regulatory system operates as nationalisation lite. This is probably the prime reason it has failed. And Cameron wants more nationalised services? For Heavens sake just stop it. There are a lot of good charities and commercial outfits offering excepetional services of this type for people in trouble. Let them get on with it, and if you really must, help them where you can. But do not, just do not set up another Nationalised service delivered through a quango. It'll just go the same way as all the other ones, suffering endemic producer capture, and an ever inflating budget driven by its relentless search for more 'problems' to solve. And why should other FS businesses pay for this? My regulatory fees have gone up 1000% and for what? To fund a dysfunctional, failed and useless regulatory system.
On this one Dave Don't Got No Clue.
...and another thing. It's just this sort of sided and spun 'report' that gets right up my nose.
There is a story here, but it's not the one Shapps is making.
The story is how failed socialist policies always drive the least well off into the arms of such firms. The firms themselves are not to blame. They have a price at which they can make their offering work. If people are so impoverished by 11 years of lefty profligacy that they are forced into this situation, then blame Brown, not the companies.
To make a further point, Cattles who specialise in loans of c £4000 (at rates of 25 to 30% plus so not the subject of this article) are cutting back lending as they cannot finance it due to the credit squeeze.
So credit is getting scarcer.
And what does the price do of a scarce resource? Go down?
:-)
A credit squeeze means those least creditworthy end up paying more.
it's called simple economics: a fact politicians tend to ignore and clearly do not understand.
Lola is right. These places are shops - money shops. They have mark-ups and profit margins on their products just as other shops do, just as pawn shops do. When you buy from shops - any shops - you make an immediate loss. What's new?. Restrict these credit dealers and those desperate for cash will turn to those who operate outside the law, as they do for other products not available legally.
Very short-sighted to come over all free-market on this issue.
I remember a documentary on Glasgow money-lenders some years ago. Their interest rates were of course horrendous - and the money-lenders never wanted to be paid back. They treated each customer as an annuity.
The (feeble) argument that they were/are providing some kind of service could be gainsaid by the fact that one of these sharks from one (literally) book - and he had a few - took £90,000 (tax-free) a year in repayments and at any one time never had more than £5,000 out on loan.
Sharp but legal practices should generally be made illegal.
Iain, free markets work. That is properly free markets work.
Making a comparison between Glasgow loan sharks and the legitimate businesses featurd in the report is not valid.
There are truths in this report but they are not the overcharging points being made. The truths are that under Brown more lower income people have been forced to use high cost small sum credit. It's a failure of government not a failure of markets.The over -, and very poor quality)regulation suffered by FS since 1997 and especially under the FSMA 2000 is in large part responsible for the credit failures that now face us. These credit failures include the price of small advances and short term advances. Freeing up the market to make it easier for local people to develop their own solutions would drive out the loan sharks and drive down the price of the legitimate businesses. They don't want loan sharks operating either.
Free markets are really just a shorthand for freedom.
Surely this is a cartel? Get the EU to investigate and they can fine them up to 10% of their turnover.
The knee-jerk reactions about "loan sharks" are as depressing as ever. It's not the first time attention's fallen on high APR small-value short-term loans to those who can't get credit elsewhere. The real loan sharks - the ones with baseball bats - must be quivering in anticipatory delight about the possible banning or restriction of these small lenders' activities.
People like Mr Shapps who want a headline really should go away and find out how the APR is calculated and why it is that the figures are distorted. Then they should do a course in common-sense thinking to be shown how if you withdraw legitimate sources of credit, illegitimate sources fill the gap (drugs control, anyone?). Then Mr Shapps should be shown how if you manage your loan book manually and collect payments by visit to suit the life style of clients, it gets expensive (hence the costs of credit).
I was a Conservative voter all my life. I gave up and left the Party some years ago as it decided that the way to get re-elected was to become a Blair-alike enterprise; I'm less and less impressed as time goes by and shows that the political flailing about has failed to produce any alternative-with-credibility to Mad Gordon Brown's attempt to kill the country once and for all.
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