Exactly who is exploiting us the most?

A report in The Guardian underlines just why there is a genuine need for some instant cash loan lenders to have their credit licences revoked by the Office of Fair Trading. It is often the action of the few that reflect upon the image of the whole industry and that has certainly been the case for Yes Loans and the ten or so money-lending organisations it’s behind.

Despite their protestations, their license will be revoked unless their appeal is successful; they plan to carry on trading during those 28 days in which they will be assembling their plea.

However, reports of their alleged deliberate misguidance of customers and illegally charging up-front fees without telling the borrowers that that was a condition of the instant cash loan they were offering may see slow traffic trudging through their doors and may not prevent them being closed down, so seriously are the OFT taking this investigation, carried out at the behest of the government and the general public.

But the point The Guardian is making is that now, one third of all short term loans being taken out contribute towards paying off existing short term loans of the same nature. The example they use is Wonga (tell me who doesn’t point to them when they need to prove a point about the sector).

If you were to borrow £400 from Wonga – who can have the money in your account in twenty minutes – you would be liable to repay £525.48 if the term was thirty days – i.e. payday to payday. That difference obviously being £125.48, which they feel is ‘exploitation’. The article then goes on to warn us about US lenders setting up in the UK, due to our lax laws on capping interest rates; some of these US firms envisage charging as much as 16,000% APR. Payday loans are not legal in all US states and those that do allow it set the repayment rate at a maximum for the lenders who set up in the quick cash advance business.

But let’s look at it from another angle, comparing the instant cash loan to unauthorised lending facilities at the High Street banks and an article by the BBC as recently as December 2011.

If a Santander customer dropped into unauthorised overdraft by as little as £100 for a straight four-week month (28 days), they would have to repay £200 – a whole lot more than the instant cash loan example and for only a quarter of the loan amount, representing a massive 819,000% APR.

So, before everyone vilifies instant cash loan companies, we may want to look a little closer to home and what our High Street banks are charging. Should lending interest rates be capped? Probably, yes. But what would that cost us in bank charges in other areas, if we took the High Street’s power to legally, unquestionably exploit us away?

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