Welsh Assembly members have called for curbs on instant cash loan companies operating in Wales and some have made the comment that these companies “suck money” from poorer communities, pinpointing in particular the high interest rates routinely charged by these companies.
Assembly members have asked the Welsh Government to promote alternatives to short term loans like credit unions.
Members also expressed concern over the easy availability of short term loans, citing how fast it was to obtain them using a smart phone or via website. A motion in the assembly noting the “excessively high interest rates” received cross party support.
Member of Assembly Simon Thomas, of Plaid Cymru, said that it only took 20 minutes for him to find a loan for four hundred pounds which incurred an interest rate of over four thousand per cent. He said that this demonstrated how dangerous this sort of instant cash loan can be.
The Welsh government was urged to work with councils and voluntary groups to promote alternatives to short term loans.
Representatives of the short term and short term loans industry have said in response to the debate that their companies provide a much needed service to a segment of the community and do not deliberately target the poorest as has been claimed.
John Lamidey of the Consumer Finance Association was quoted as saying that the short term loans companies are helping people on variable incomes. “They are not the same as lenders who go from doorstep to doorstep” he said. He went on further to state that the typical customers of short term loans tend not to be people on the lowest incomes. They are more typically on middle incomes.
The Consumer Finance Association represents the majority of the short term loans companies. The Office of Fair Trading in a recent survey found that a quarter of customers taking out these small loans were earning between fifteen to nineteen thousand pounds a year, while nearly thirty percent are earning over twenty three thousand pounds a year.
The Citizen’s Advice Bureau said that while short term loans companies were an increasing concern, only a small percentage of those people going to their offices for advice on debt were taking out short term loans.
There will be an advertising campaign rolled out soon which will extol the virtues of credit unions, which are regarded as a safer option than short term loans.