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Is time up for payday lenders?

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The growing controversy over payday lending schemes has led to the Commons Public Accounts Committee planning to conduct a one-off session to scrutinise the methods and practises used by such companies.

Loan Sharks

Often compared to modern day loan sharks, payday lenders are keen to shrug off this image and insist that their high interest rates are justified. The Money Shop charges 29.99 for £100 borrowed in a month and Wonga, £37.15, yet companies such as these state that the fees are affordable and each customer’s finances are checked thoroughly to ensure they can pay back whatever they borrow, plus the interest accrued.

Investigation

A report by the Office of Fair Trading (OFT) is the catalyst for the meeting between the Commons Public Accounts Committee, lenders and consumer groups. This meeting will serve to discover more about how lenders attract customers and how they make their profits. The report by OFT and their subsequent threats to forward their findings to the Competition Commission has already caused 25 lenders to withdraw their businesses completely.

The Small Print

One of the major complaints about payday lenders is their failure to make customers aware of all the consequences of accepting a payday loan. Besides the high interest rates, customers may face difficulty gaining a mortgage in the future as mortgage applicants are sometimes declined on the basis that they have had a payday loan in the past. At present, lenders are not required to publicise this information.

A Quick Fix

Despite claiming to make people’s lives easier by offering them immediate access to cash without them having to turn to real loan sharks, payday lenders have been criticised for being easily accessible to the most vulnerable people in society. The Financial Conduct Authority (FCA) is tackling this problem head on by limiting the number of times a loan can be “rolled” over by payday lending companies. By extending the pay-back period, customers are left owing more and more, with many unable to pay it back at all. FCA believes by stopping this practice and by issuing fines to lenders who falsely advertise services, less people will be financially devastated in the long run.

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About Denise Morgan

About Denise Morgan

Denise has five years' experience writing for various web-based companies. During this time she has also contributed to magazine articles and brochures. In addition to writing, Denise is a gigging singer/songwriter and is proud to have featured on the first series of BBC One's The Voice UK, having been selected by the great Sir Tom Jones. Denise is mother to the most talented and ridiculously intelligent two year old that has ever been and ever will be (until she creates another one that is). This kind of hyperbole is restricted only to her progeny and is not a reflection of her usual writing styles... Denise and her son live in Manchester along with their five cats - yes that's right, five.

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