Partner Article

Short-Term Solutions are a Long-Term Disaster

As the increasing prevalence of payday loans gains more media exposure, do consumers really know about the possible short and long-term ramifications of using these legalised loan sharks?

This weekend, the Daily Mail reported how payday lenders frequently “lose” cheques sent by customers to settle debts, resulting in higher interest charges for often financially vulnerable borrowers.

With it not uncommon for people borrowing from one lender to repay another, customers can quite easily find themselves in a downwards spiral. However, this weekend’s findings would suggest such behaviour can present customers with costly long-term difficulties.

Paul Lynam, chief executive of Secure Trust Bank, said that High Street banks are ever more seeing those with a history of using payday loans as too risky to lend to. With banks operating systems of “fatal criteria”, whereby one being triggered results in the automatic declination of a loan request, customers with any history of resorting to lenders are likely to fall into such criteria.

The Department for Business has announced that November 23 will mark the introduction of a voluntary code of conduct for the UK’s 222 payday loan firms. It is about time that the industry is forced to adhere to legal principles outlined in strict financial regulations, after all, are loan sharks not illegal?

Voluntary schemes simply will not give vulnerable customers the protection they need. These firms are already required to act responsibly under the Consumer Credit Act – can interest rates upwards of 4000 per cent really be considered responsible lending?

Glenn Morrill, Director of MyMoneyPA, underlined the importance of educating people of available alternatives when facing financial hardship. “It is vital consumers know that these loan sharks don’t have to be the solution”.

MyMoneyPA recently made their stance against payday lenders quite clear. Wonga’s deal with Newcastle United prompted the North East firm to cancel arranged match day hospitality for next month’ s Man City tie as a prize draw for it customers – opting instead for the reverse fixture in March.

He continued, “With tools such as our Money Planner and other budget planners, you can keep a closer eye on all incomings and outgoings and services such as Step Change Debt Charity are always available for those who need it the most.”

This was posted in Bdaily's Members' News section by MyMoneyPA .