Payday loans are under scutiny

TIGHTER control over advertising payday loans was on the agenda at Scottish Borders Council last week when councillors supported a motion tabled by East Berwickshire councillor David Raw calling for an investigation into how they operate.

“Payday loans are a recent phenomena,” Councillor Raw told councillors last Thursday.

“They have propelled hundreds of thousands of people into unsustainable debt as a result of charging excessive interest rates – some amounting to over 5,000% APR.

“They are here in our midst in the Scottish Borders. Via the internet they reach out to the most remote corners of Scottish Borders. A google search of payday loans has links to every town in the Scottish Borders.

“They use the soft sell of ‘it’s quick, it’s easy’. What you might not notice is a tiny faint strap line with the APR interest rate of several thousand per cent.

“There is also a question of the quality of staff and the advice given to often desperate people. When I telephoned a payday loan shop in Gala the staff member I spoke to was fully briefed on the process – but when asked didn’t know what their APR was. Eventually they supplied a figure of 1,414 %. A check on the company’s web site revealed that it was nearly twice that at over 2200%.

“Many of the firms concerned are based abroad particularly in the USA. They are making personal debt in the UK bigger whilst exporting massive profits measured in billions abroad.

“On a human scale there are stories in the national press about the payday loan debt explosion causing depression, marriage break up and even suicide.

“One in seven people in the UK have turned to credit such as a payday loan or an unauthorised overdraft to cover their rent or mortgage costs in the last year.

“In Scotland, Citizens Advice Bureau state the number of clients coming to them for debt counselling has grown four fold over the last five years. Our local Borders CAB reports similar figures.

“Our own SBC welfare & debt advice team report a doubling of the number of people needing debt advice since Christmas.

“Obviously growing unemployment or short time working is a huge factor – but it is more than that. Another simple trigger can also start the spiral such as a shift from weekly to monthly wages.

This motion calls only for tighter controls on advertising. I personally would go much further and would like to see: a cap on interest rates; a limit on the number of payday loan rollovers; local authorities having powers to refuse planning permission for premises under change of use to become pay day loan shops.

“I urge council to support and re-invigorate the Capital Credit Union which has the authorised licence to operate throughout the Borders – and which has interest rates capped by law at over one hundred and seventy times lower than the typical pay day loan.

Payday loan companies will come under fresh scrutiny after the Office of Fair Trading (OFT) launched a review of the sector amid concerns some lenders are taking advantage of people in financial difficulty.

The review will look at: whether lenders are giving loans without adequate checks that the borrower can repay them; targeting groups of people with unsuitable or unaffordable credit; rolling over loans so charges escalate and become unaffordable; treatment of borrowers who get into financial difficulties.