A tax on the poor – lending needs a rethink

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20/09/2018 Why we need to rethink lending for people in financial difficulties – by James Walker, Resolver founder.

When the biggest and most notorious payday lender, Wonga, collapsed recently, my entire week was taken up with questions about its fall from grace. But as time progressed, a new and more important question arose. What does this mean for Wonga’s customers?

Wonga was finished off by a combination of a toxic brand and claims management companies putting in speculative claims on behalf of dissatisfied customers. But when Wonga went under, people still continue to owe their debts – while people in financial difficulties still have little option but to go to other high interest lenders.

Over the weekend, the industry fought back in this article on the BBC website.

I’ve been thinking a lot about the comments in the feature. There’s little doubt that claims manager vultures are hounding payday lenders for ‘easy’ money – even though there’s no automatic right to compensation. And weirdly, though I disapprove of their lending practices, I do agree that payday lenders became the ‘lender of last resort’ because banks and other established lenders stopped helping people who were struggling with their finances.

Now before we roll out the bunting and throw payday lenders a parade, I’ve recently heard from loads of Resolver users about highly questionable practices by the new or rebranded payday lenders. Over the weekend I counted at least two payday loan adverts in every advert break on various cable channels. The industry is very much thriving – and it still needs to clean up its practices.

But this raises a wider issue. If we want to live in a world where payday lenders don’t exist, who is helping the people who use them? Bank overdraft rates can be just as extortionate – and more so if you go over your limit. Credit cards aren’t the answer and you won’t get one if you’ve defaulted on payments in the recent past.

The current situation is unfair and unacceptable. I’ve never understood why people struggling with money have to pay the highest fees and charges – and why they get pushed further in to debt as a result. It’s time for a radical rethink on how money is lent in this country. Do we fund more credit unions? Should we have a bank funded by levies designed to offer low value loans without interest to people struggling? These are questions we need to answer soon. I’d love to hear your thoughts.

Legitimate claim or part of the problem?

So if you’ve had a payday loan can you make a claim – and is it ethical to do so?

Payday loans are legal and regulated, so just having one doesn’t mean you get free money. The problem comes when you either default on the loan and get hit with high interest or debt collection procedures. Or when the firm extended or continued to make money off you when it was clear you were struggling to pay the bills.

Payday lenders were supposed to check whether you could afford your loans, but in practice, few used credit reference agencies. However, research suggests that the average regular payday lender had around 7 loans at any given time – they were trapped in a cycle of debt, basically. This is inappropriate lending. The rules say the firms should have taken steps to suspend interest and help people out of the debt within reason). In practice, the opposite often occurred.

So you can make a complaint about a payday loan if:

  • The firm should have known you were struggling to make ends meet.
  • You had multiple loans but the firm didn’t check.
  • You asked for help but were hit with interest and charges or debt collection instead.

Remember though:

  • Don’t expect a full refund. If you borrowed the money, you owe the money.
  • The business may look at interest and charges arising from the reasons above. Just being charged high interest doesn’t mean you’re entitled to compensation.

If the firm has gone bust, there’s little chance of a claim succeeding.

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