How to avoid pay-day loans at Christmas?

Posted in Blog | Nov 02, 2012 | By: Simon Thomas

Prepare yourself for a barrage of adverts ahead of Christmas which will offer you cash to borrow quickly and easily to pay for the festive season. Many of these adverts will be by pay-day loan companies and people will be enticed to borrow more than they can afford.

The danger posed by the continuing lack of effective regulation for these companies was highlighted during a debate I led in the Senedd earlier this year. That debate attracted cross party support for a motion that highlighted the proliferation of pay day loan companies operating in Wales; and the extremely high rates of interest many of these companies charge their customers. During the debate we pointed out the increasing ease of access to such loans through smartphones and the internet; and how such lending creates severe debt amongst our poorest communities and sucks money out of them.

Since that debate the number of pay day loan companies advertising has increased and the normalisation of these companies into our social fabric, such as Wonga sponsoring premier football clubs, has spread.

We need to challenge this normalisation however. Pay day loan companies are rapacious sharks who have sniffed blood in the wake of the recession and are hunting down the weakest in our communities.

 As part of my work as an Assembly Member I feel I have to speak up for those who are unlikely to have a voice on these issues. During the recent Office of Fair Trading inquiry on pay-day loans I gave evidence stressing how the pay-day loan company advertisements highlight the ease of getting a loan; how quickly the money will be in the bank and how the amount to be paid back is talked about in terms of £20s or £30s, making it is hard for the consumer to see the true price they are paying in APR. The emphasis is on convenience and “everybody does it”.

I am particularly concerned at the promotion of payday loan smartphone apps, which make no mention of interest rates during the installation process.

Although these loans are more traditionally associated with those who are unemployed or in low-income jobs, the downturn in the economy has led to more and more people in other groups within society coming forward with debt problems having taken out payday loans. Indeed, Wonga has announced an intention to offer loans to small businesses.

Ceredigion Citizens Advice Bureau has noted an increase in people beyond the ‘financial inclusion’ group coming to them for advice on payday loans. They also note that this has meant there are fewer resources available to deal with the increased number of cases.

A local group in Llanelli serving a Communities First area with a project specifically to deal with debt problems have said that more and more people are coming to them and that many are from groups that do not fit into the Communities First criteria. They note that they are “getting to the point where we might have to see only people from Communities First wards, whereas at the moment we don’t turn anyone away.”

We could see a situation where people not traditionally considered to be most in need will lose out and won’t have anywhere to turn.

It is because of some of these issues I will be holding a drop-in surgery at Asda Llanelli in association with Shelter Cymru from 10.30am to 2pm on Tuesday 11^th December to offer advice to people about how to avoid pay-day loans at Christmas

Some people turn to payday loans or unsecured personal loans after being refused a loan by banks, and feel they have nowhere else to turn. People need to become more aware of the other options available to them, hopefully my drop-in surgery will start to make a difference and raise awareness.

One good example of a credible alternative are Credit Unions and initiatives that lend money to disadvantaged people. Worldwide there are 49,000 credit unions in 97 countries serving 184 million people. Wales’ 22 credit unions, currently offers support to 42,000 people but they must be given support by public bodies to reach those in need of their help.

Moneyline Cymru is another example of such a scheme, backed by numerous housing associations and lending £3.625m to customers who would not be able to access loans from mainstream banks, at a much lower interest rate than pay day companies. They estimate that through their work they have saved £2.18m of debt interest. They also encourage customers to save and provide savings accounts to enable this as well as providing a money and debt advisor to all customers. This can only educate people and ensure that they are not trapped in debt but can move themselves forward.

In the short term I hope people can be made aware of the practices of these lenders but in the long term we need to see better regulation by Westminster and an effective cap on the rates of APR running into the thousands of percent.

Simon Thomas Mid and West AM, Party of Wales