A small group of MPs within the Conservative / Liberal Democrat Coalition Government want the “legal loan sharking” of Payday Loans banned. But what will this really achieve?
In our opinion this will only encourage illegal loan sharks to target more vunerable families and individuals who reply on a valuable service provided by Payday Loan Lenders that work under the guidance of the Office of Fair Trading.
Online lender Wonga, for instance, quotes a typical APR of 2,689 per cent. But founder Errol Damelin says: “We are very selective about who we help.
“Our customers tell us they are choosing to use our short-term service over traditional alternatives of raising urgent funds, such as overdrafts and credit cards, because they know exactly how much it will cost and repay it quickly.”
He says that quoting high APRs to criticise payday lenders can be misleading because the loans are short-term while APRs are worked out on the basis of borrowing money over a year.
Damelin points out that the annualised cost of hiring a DVD would be £1,095, which is clearly a nonsense.
His view was supported by the Office of Fair Trading in June, when it gave a thumbs-up to the payday loans industry, saying the market worked “reasonably well” and there was no need to impose price controls.
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