WEEKLY PAYDAY ROUNDUP: 7 DAYS ENDED 30 NOV 2012:
It’s bad news for Wonga, as its high interest rate days are numbered thanks to a surprise House of Lords vote this week approving a last minute amendment.
The new Financial Services Bill was given a last minute addition in the House of Lords this week in the form of an amendment granting the new regulator the authority to place caps on payday advance lenders’ interest rates. This is a major victory for consumer campaigners who have been fighting tooth and nail for such a provision, based on arguments that payday loan providers such as Wonga that are permitted to charge 4,214 per cent in annualised interest are nothing better than ‘legalised loan sharks,’ leading to financial ruin for British households that can’t repay the loans quickly enough.
Payday lending activity has grown by a massive margin over the past few years, filling the void in consumer credit left from the high street effectively shuttering their doors to borrowers in search of ‘subprime’ lending. The number of online lenders that have stepped in to plug the hole has been monumental, with firms such as QuickQuid joining Wonga and an innumerable tidal wave of loan shops have sprung up in he high street, all offering interest rates that are positively ‘usurious,’ according to the incoming Archbishop of Canterbury.
It is true that there are many payday lenders that charge much less than 4,000 per cent in annualised interest, and many of these providers of short term loans may be on the up and up as far as the the new regulator is concerned. However, with the rapid proliferation of these lenders, campaigners – and now the House of Lords – feel that the industry as a whole needs greater oversight and more legislative control to protect the interests of the nation’s low income earners, especially when underhanded lenders may be targeting cash-strapped Brits on purpose.
It’s more than just concern over high interest rates, as many of these lenders play much too fast and loose with handing out lending approvals. Most lenders run only the most cursory of checks on whether a borrower can repay a loan taken out, and quite a few advertise this speedy turnaround by promising ‘same day loans’ or ‘cash in as quick as an hour.’