Mike the Psych's Blog

What if psychologists ruled the world? In real life?

Legal loan sharks

P1000272Industrial towns have been no strangers to pawnbrokers in past recessions. Now their place has been taken by shops who’ll buy gold (you can even do it on-line) and pay-day loan companies.

You know the ones, the cuddly pensioners on the TV advert represent only one of hundreds of similar companies. But there’s nothing cuddly about these companies which have made their owners millions as most of us tighten our belts.

You’re short of cash so you borrow the money and pay it back through your bank or credit card. There’s a wopping interest of over 1500% with some companies charging 2000% APR but typically you pay £25 a month for a £100 loan if you pay nothing back.

And before you know it you’re paying struggling just to pay the interest but the lenders aren’t worried because typically they collect repayments using continuous payment authorities (CPAs).

These agreements give the lender an indefinite mandate to take money from a borrower’s credit or debit card and to alter the amount deducted. This can result in borrowers accounts being overdrawn which then incurs charges from the bank.

The Office of Fair Trading believes the access CPAs provide to customers’ accounts has given payday lenders confidence that they will be able to get their money back without checking the customer can afford to repay a loan.

More tan 40,00 people signed a petition calling for a cap on pay-day loans and the government decided that interest rates should be capped but haven’t decided what is a “fair” rate.

Do an internet search on “pay day loans” and you will see hundreds of these companies, some offering on-line lending in 15 minutes, and some giving fictitious examples of how the loans can help you. They are supposed to act responsibly but there is evidence that under-18s have arranged loans on-line (which is illegal) and there have been cases of identity theft.

One company provided 2.5 million loans last year, with an average of £255 over 16 days. They also wrote off almost £80 million of un-collectable loans – four times higher than in the previous year. Which makes you wonder about the safeguards they have in place to ensure responsible lending. Despite this they still made about £50 million in profit – perhaps their representative APR of 4,214% helped!

Credit unions and debt counselling might be a more sensible way to go but when one company sponsors a premier league football club for over £20 million pounds without anyone making a fuss it suggests that these companies are now accepted as a part of life for many working people in the current recession.

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Author: mikethepsych

He says he's a psychologist but aren't we all?

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