Byron Orme takes the short term loan lenders to task for their ridiculous interest rates.
Byron Orme is a media intern at the Fabian Society
There was good news last Wednesday, as the NUS passed a motion supporting a cap on the amount of interest that can be charged on a loan. It’s time for the government to follow their lead and pass legislation that would put an end to a highly exploitative practice.
If your household budget is finely balanced, small things can throw it off, such as needing to pay for school clothes, books, or a new washing machine.
To do so you’ll need to borrow a small amount of money in the short term. But at the lower end of the income spectrum, borrowing money at the relatively low interest rates available to others is impossible.
The only options available are often exploitative and trap people in a cycle of debt through a combination of easy credit and vast interest rates.
One of the biggest companies involved is Wonga, which Boris Johnson allowed to sponsor free tube travel on New Year’s Eve. A quick look at their website shows that anyone who wants to borrow £207 for 20 days pays 4214 per cent APR. That is not a typo, and is the example they themselves give as representative. This is also not just ‘what is costs’. Six lenders account for 90 per cent of the market and there isn’t enough competition to drive interest rates down.
“We know that there has been a fourfold increase in payday lending since the recession began, and that due to a lack of regulation in the market in the UK, The Money Shop, Wonga, Provident, BrightHouse and other companies are expanding across the country at an alarming rate. Indeed, they have already pointed to the government’s policies as increasing their customer base.”
Both the last government and this one have put some money into credit unions which is an important step. Third sector organisations and NGOs are best placed to offer a service for which demand is extremely high, and rising.
But £73million is not a great deal when you consider 1.5m people are indebted to pay day lenders. There should be more regulation of an industry designed to trap the most vulnerable into a cycle of un-payable debt.Like this article? Sign up to Left Foot Forward's weekday email for the latest progressive news and comment - and support campaigning journalism by making a donation today.