Payday Loans: The Legal Shark in the Water

Following the introduction of the Payday Loan code of practice which was introduced by the Consumer Finance Association on 14th July 2011, there are a number of views bouncing around out there. Some see it as the payday lenders taking steps to construct good practice, which if adopted ‘all round’, will result in everyone singing from the same hymn sheet & the more boisterous among them toning down their ominous tactics when collection of the debt becomes debt collection!

Payday lenders are advertising more and more on television with quirky ads & the actors all wear grateful expressions when handed a wad of cash from the telephone line. In fairness to them, they don’t try and hide the APR which typically ranges from 1286.2% to 2100.4% on average, however I fear this may be because it would be frowned upon not to and not just because they are proud of the amount of digits their APR sports!!

These figures are exorbitant, however if these loans are used for the purpose they are intended, a £100 loan for 31 days will cost £125 to repay. This is great if perhaps, and I quote “your pay just doesn’t seem to stretch far enough”!

Doesn’t seem much does it, however let’s be honest, how many people actually take out this kind of loan for that purpose?? It’s not that spectrum of consumers that I’m worried about.

All you need is

• A regular income

• A UK bank account with a debit card

I appreciate that each lender has their own criteria and some even perform credit checks but the end result is usually the same. They offer you a loan of £200 and you pay back £260 on your next pay day! Happy days……or is it!??

Some Things To Keep in Mind

Point 1: Unless you can seriously cut back, chances are you’ll get to the middle of the next month and BANG your skint again. So you go online, Google pay day loan and find another. Take out another £200, payable on your next payday and so the cycle continues.

Point 2: The companies themselves don’t want you to pay back on your next payday! That’s like clearing your credit card every months. Who’s going to make any money that way? So, just before your next pay day, your courteous lender calls you up and asks if you would like to ‘roll over’ your £200 loan to the next month and only pay the interest. So you pay your £60 interest and never actually make a dent in the original debt. Before you know it, you’ve paid £180 in interest for the privilege of ‘rolling over’ for 3 months and the £200 debt is still there, untouched and the only way your paying that bad boy off is to bite the bullet and sacrifice the full £260 just to get rid. Then….see Point 1.

Point 3: What happens when you don’t pay what you should? Well, from taking various signed undated cheques for the balance to asking for scanned photocopies of your debit card, these are ways your friendly Payday Loan Provider may secure collection. So if you DO find yourself in difficulty, and you can’t see a way of ever getting out of ‘rolling over’, don’t think that it’s as easy as cancelling your direct debit and waiting for the debt collection letter to pass through your door.

Read The Small Print

I’m sure you’ve heard it before however for those who haven’t, READ THE SMALL PRINT. Your credit agreement will probably state, very unclearly that should you fail to maintain your agreement or pay the balance when they say, you’re basically allowing them to;-

• call you at your home, at work and on your mobile, on the hour every hour and perhaps crack open the yellow pages and call everyone with your surname asking “does Dave live there?”

• Leave messages with your colleagues that your debt is overdue and you must contact them or you’ll die

• Sent you various e-mails/letters headed up ‘ Pre Litigation’ or ‘Court Action pending’ etc giving you a certain time to respond but disregarding this and cracking on with my final point.

Okay, so these are pretty average collection tactics for the more ambitious amongst them and perhaps slightly over exaggerated, however it’s my final point which is the most important;

• Whilst we are doing the above, we will try debiting various amounts of money from your scanned debit card which you gave us permission to do when you electronically signed the agreement. We will do so until either the debt is paid off in full, or until we’ve cleared out your account and your bank isn’t entertaining any further debits. We wont tell you about this and the first you’ll know, is when you try to buy your weekly shop with your 4 kids hanging off of various limbs and trolleys and your card is declined!

So in a nutshell, if you can, avoid the sharks & go for a gold fish instead and only consider a payday loan as a very last resort.