Johann Lamont, the Scottish Labour leader has recently come forward against short term loans and instead told people living in Scotland to resort to credit unions instead.
Scotland is in need of changing its debt relationships, said Mr Lamont, who claimed that too many people are resorting to payday advance firms in order to finance their Christmas spending, despite the vital service these lenders provide to the Scottish people. Instead, Scottish Labour recommended that households should steer clear of instant cash loans due to their high interest rate payments.
The party took issue with the high APR interest rates charged by payday lenders operating within Scotland. Meanwhile, with the government estimating that around 85,000 Scots borrow from illegal sources with interest rates as high as 10 million per cent, suddenly the 2,000 per cent APR average seems much less egregious.
The 2,000 per cent figure may seem exorbitantly high at first blush, but industry experts point out that an annualised rate like the APR is simply not consistent with the true cost of repayment when it comes to short term loans. This is because these loans are designed to be repaid in a very short period of time, and the APR is more suited to traditional long-term lending products.
Many question why payday lenders use such inherently misleading methods to publicise the interest rates they charge on their loans, feeling it the height of foolishness to draw the concentrated ire of politicians and interest groups down upon their heads. However, payday lenders – which are regulated by the UK government – are bound by law to use APR interest rates in all their documentation.