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The Legal Shark in the Water

Sep 27 2011

Following the introduction of The Payday Loan code of practice introducted 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 on tv with quirky ads full of actors with grateful expressions when handed a wad of cash from the telephone line.  In fairness to them, they don't try & hide the APR which typically ranges from 1286.2% to 2100.4% on average, however I fear this may be because if would be frowned upon not to & not because they are proud of the number of digits their APR sports!!  These figures are exorbitant, however if these loans are used for the purpose they are intended, a £200 loan for 31 days will cost £260 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 this spectrum of consumers 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 a credit check but the end result is usually the same.  They offer you say, £200, you pay back £260 on your next pay day!  Happy days....... or is it ??

(1)

Unless you can seriously cut back the next month, chances are you'll get to the middle of next month and BANG, your skint again.  So you go online, google payday loan and find another.  Take out another £200, payable on your next payday and so the circle continues. 

(2)

The companies themselves don't want you to pay back on your next payday.  That's like clearing your credit card every month.  Who's going to make any money that way?  So just before your next payday, your courteous lender calls you up & asks if you'd like to 'roll over' your loan & just pay the £60 interest.  Before you know it, you've rolled over 3 times, paid £180 in interest for the privilege of 'rolling over' and the £200 debt remains untouched.  The only way your paying that bad boy off is to bite the bullet & sacrifice the full £260 just to get rid.  Then......see (1). 

(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 the ways your friendly Payday Loan Provider may secure collection.  So if you do find yourself in difficulty, & you can't see a way of ever getting out of the dreaded rollover, don't think it's as easy as cancelling your DD and awaiting the debt collection letter to pass through your door. 

 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, your basically allowing them to;-

 !  Call you at your home, at work & on your mobile, on the hour every hour & perhaps even crack open the yellow pages & call everyone with your surname asking "Does Dave live there?"

!  Leave messages with your colleagues that your debt is overdue & you must contact them "or you'll die".

!  Send various pieces of correspondence headed up 'Pre Litigation' & 'Court Action Pending' giving you a certain time to respond but disregarding this & cracking on with my final point. 

 Okay, so these are pretty average collection tactics of the more ambitious amongst them & perhaps slightly over exaggerated for the fun factor however it's my final point which is most important.

! Whilst we are doing the above, we try debiting various amounts from your scanned debit card until either the debt is paid off in full, or until we've cleared out your account & you bank isn't entertaining any further debits.  We won't tell you about this and the first you'll know is when you try to buy your weekly shop with your 4 kids hanging onto various ankles & trolleys & your card is declined. 

 

 So, in a nutshell, if you can, avoid the Sharks & go for a Gold Fish instead & only consider a payday loan as a very last resort.

 

Nicola Standen 

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