16th December 2013
While the vast majority of Britons support the Government’s move to cap the sky-high costs of payday loans one lender says the move is likely to bolster borrower appetite writes Philip Scott.
Last month the Government announced it was going to introduce a cap on the prices so-called payday lenders could charge borrowers, echoing laws already in place in Australia.
As banks have imposed tougher lending criteria on borrowers since the financial crisis, payday lenders which specialiase in short-term loans, have seen their popularity soar but they have come under fire for charging extortionate annual interest rates of more than 5,000%.
The cap will be included as part of the Banking Reform Bill, which is in the process of going through Parliament.
But research from ‘alternative’ lender Amigo Loans has found that while the majority of Britons, at 84%, are in support of Government plans to introduce a cap, more than one in 10, at 12%, of 18-34 year olds believe they will be more likely to take out a payday loan once the cap is introduced, and 9% of them believe they would take one out anyway irrespective of the cap.
While the nation is broadly in support of the cap, it won’t go far enough to curb the bad practices of payday lenders. Over three quarters at 82% think payday loan companies make it far too easy for people to take out a loan, while 86% believe payday lenders should be doing much more to ensure borrowers actually understand interest rates before agreeing to lend them money.
The survey also found that almost three quarters of respondents, at 74% believe computer calculations, used by the likes of Wonga, do not allow for sufficient checks to be made to ensure the information provided by the customer is correct prior to lending. In addition, 81% think loan companies should speak to customers instead to ensure loans are only given to those who can afford to repay.
James Benamor, CEO of Amigo Loans says: “The Government’s cap reeks of gesture politics and while it might go some way to eliminate the crooks in the market, it won’t solve the bigger issues plaguing the industry which is clear guidance on affordability.
“Borrowing money can be a good thing and at cheaper rates an even better thing but it’s all academic if people can’t afford the repayments. The cap could be 0% and payday lenders will still be giving loans to people who shouldn’t be borrowing. The regulator needs to act urgently and offer clear guidance on affordability, and harsh enforcement against the worst offenders.”