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Pay day loan firms end up taking money away from our communities [Daily Post (Liverpool, England)](Daily Post (Liverpool, England) Via Acquire Media NewsEdge) During the last six years, falls in real incomes have created demand for short term loans and, because of the lack of appropriate regulation and restrictions by traditional lenders on unsecured borrowing, this demand has been met by new entrants such as Wonga into the market which are able to offer loans quickly to potential customers. However, a recent report from the accountancy body the ACCA shows there has been increasing concern regarding the growth of so-called payday loans i.e. small, short-term unsecured loans where both the principal and interest scheduled is to be repaid on a single date. They are generally used by those who cannot obtain credit from mainstream funders such as banks and, as a result, the businesses who provide such facilities have been accused of preying on the most vulnerable in our society who have little option but to go to such lenders for financial support. Whilst the sums borrowed are not high individually, the amount of interest paid on such sums are perceived as extortionate. The Office of Fair Trading (OFT) has estimated the average payday loan is around Pounds 270 for 30 days, with interest ranging from around Pounds 15 to Pounds 35 per Pounds 100 borrowed for one month. This, in annual percentage rate (APR) terms is equivalent to between 448% and 3752%. And whilst companies such as Wonga have been accused by the Archbishop of Canterbury of being legal but not ethical or moral, there is little doubt that this is big business for these firms. Indeed, over 12m short term payday loans were arranged in the UK in 2012, equivalent to around Pounds 3.7 billion of credit, with those borrowing paying over Pounds 900 million in interest and charges. Most of this income doesn't come from new loans but from so- called rollovers. This is when a borrower cannot repay a loan at the end of the month, this is then extended until the next payday with additional interest and charges. As a result, some individuals can remain stuck in an increasingly expensive circle of debt as the costs of servicing the original loan go up every day. Time 'to loan With money flowing out of poor communities into these businesses, the ACCA argue that not only would many payday borrowers clearly have been better off without these loans but local economies would also have been given a boost if the money spent on servicing high interest loans would have been spent in their local communities. to find alternatives payday firms in Wales The recent cap on borrowing on payday loans proposed by the Financial Conduct Authority will undoubtedly help but surely there are other alternatives to the current situation in which the poorest members of society are paying 'ridiculous amounts to access money? The potential of credit unions to support the financial needs of the communities in which they are located has yet to be properly realised, especially in Wales. In addition, there have been calls for charities to team up with banks to deliver low cost loans. The Welsh Government has also examined the potential creation of a publicly-funded Community Bank to help serve lower income individuals. So there are alternatives that should be considered to the current situation and with the Church of England now stating that they want to support an alternative to payday lenders, there may finally be an impetus to ensure that those on the margins of society get access to the affordable loans that most of us take for granted. 'Time to find alternatives to pay day loan firms in Wales (c) 2014 ProQuest Information and Learning Company; All Rights Reserved. |