But, don’t you understand? It’s an emergency! I need an immediate payday loan!

We have been satiated with long winded arguments about the appearance of the heinous Payday loan. We have listened to politicians ranting on and on that something should be done, blaming it on everything, even children’s television programming, rather than examine an economy that allows this to happen in the first place. We have heard, in abundance, all the gory stories on how innocent, unsuspecting customers find themselves in one of these offensive establishments borrowing money to keep them selves alive. In desperation they had nowhere to turn.

But it’s so easy. All you have to do is to go down to the high street and get yourself a payday loan – an emergency loan that you can take out on the spot, receiving your cash immediately. If you are too lazy to walk down to the high street, you can also apply on line and you should have your cash, in your bank account within hours. These glorious life savers often don’t even check your credit rating. How easy is this?

So what is all the controversy about then? It is pretty simple:

  • Payday firms have a bad reputation for taking advantage
  • Payday firms offer immediate loans with not much in the way of credit checks or any other paper work.
  • They basically hand out money at a huge risk that they will never see it again, and statistically about 30% are paid late or not at all.
  • That huge risk costs the customer in the form of interest. Payday companies charge huge interest rates, especially if you let the loan run past the time of repayment.
  • Payday companies also charge fees like any credit card or bank loan.

Thandi is a good example of why everyone has their knickers in a knot. Thandi is the single mother of a young girl. She has a problem with her car and it needs repairs. She needs the car to drop her daughter off at day care so she can work. She is already struggling, has no help from family and no savings or credit cards. Thandi knows that her end of the month pay check will be used for rent, utilities, and food. She is in survival mode. So what can she do about the car? She goes out and takes 5 loans from different Payday lenders, knowing full well that she will not be able to pay them back.

So the Financial Conduct Authority (FCA) will be stepping in to review how the Payday lenders collect their debts. The FCA also plans to cap Payday credit costing. This is a step that the government has forced on them. The Watchdog is right on their tail to make sure that promotional material is not misleading. Because the Office of Fair Trading (OFT) are receiving large volumes of complaints about how these debts are collected, the FCA will look at finding different payment options. According to the OFT more than one third of all Payday loans are either not paid back at all, or are paid late.

The question is who is going to review the customers exploiting Payday lenders. Something should definitely be done about these people who need cash and are unscrupulous about getting their hands on it.