4,214 per cent APR. Interested?

Byron Orme is a media intern at the Fabian Society

Debts There was good news last Wednesday, as the NUS passed a motion supporting a cap on the amount of interest that can be charged on a loan. It’s time for the government to follow their lead and pass legislation that would put an end to a highly exploitative practice.

If your household budget is finely balanced, small things can throw it off, such as needing to pay for school clothes, books, or a new washing machine.

To do so you’ll need to borrow a small amount of money in the short term. But at the lower end of the income spectrum, borrowing money at the relatively low interest rates available to others is impossible.

The only options available are often exploitative and trap people in a cycle of debt through a combination of easy credit and vast interest rates.

One of the biggest companies involved is Wonga, which Boris Johnson allowed to sponsor free tube travel on New Year’s Eve. A quick look at their website shows that anyone who wants to borrow £207 for 20 days pays 4214 per cent APR. That is not a typo, and is the example they themselves give as representative. This is also not just ‘what is costs’. Six lenders account for 90 per cent of the market and there isn’t enough competition to drive interest rates down.

Such companies are doing extremely well, as public debt is being transferred onto households. As Stella Creasy, who has been running a concerted campaign against these companies, says:

“We know that there has been a fourfold increase in payday lending since the recession began, and that due to a lack of regulation in the market in the UK, The Money Shop, Wonga, Provident, BrightHouse and other companies are expanding across the country at an alarming rate. Indeed, they have already pointed to the government’s policies as increasing their customer base.”

Both the last government and this one have put some money into credit unions which is an important step. Third sector organisations and NGOs are best placed to offer a service for which demand is extremely high, and rising.

But £73million is not a great deal when you consider 1.5m people are indebted to pay day lenders. There should be more regulation of an industry designed to trap the most vulnerable into a cycle of un-payable debt.

http://twitter.com/philrandal/status/59165713365086208 Phil Randal

RT @leftfootfwd: 4214 per cent APR. Interested? http://bit.ly/eh5HDk – @ByronTOrme investigates the short term loan lenders
http://twitter.com/puffles2010/status/59168055594450944 The Dragon Fairy

“@leftfootfwd: 4214 per cent APR. Interested? http://t.co/3BOd6co – @ByronTOrme investigates the short term loan lenders” @stellacreasy
http://twitter.com/byrontorme/status/59170164935098368 Byron Thomas Orme

RT @leftfootfwd: 4214 per cent APR. Interested? http://bit.ly/eh5HDk – @ByronTOrme investigates the short term loan lenders
http://twitter.com/gplondon/status/59171564662435840 Geoffrey Pearson

RT @leftfootfwd: 4214 per cent APR. Interested? http://bit.ly/eh5HDk – @ByronTOrme investigates the short term loan lenders
http://twitter.com/darionahi/status/59175377276370944 Dario Nahi

RT @leftfootfwd: 4214 per cent APR. Interested? http://bit.ly/eh5HDk – @ByronTOrme investigates the short term loan lenders
http://twitter.com/natandoron/status/59175481077018624 Natan Doron

RT @leftfootfwd: 4214 per cent APR. Interested? http://bit.ly/eh5HDk – @ByronTOrme investigates the short term loan lenders
http://twitter.com/labour_dave/status/59180995290734593 David Marsden

RT @leftfootfwd: 4214 per cent APR. Interested? http://bit.ly/eh5HDk – @ByronTOrme investigates the short term loan lenders
http://twitter.com/flutterbug20011/status/59183291386970113 t hill

RT @leftfootfwd: 4214 per cent APR. Interested? http://bit.ly/eh5HDk – @ByronTOrme investigates the short term loan lenders
http://twitter.com/kevingulliver/status/59200925864169473 Kevin Gulliver

RT @leftfootfwd: 4214 per cent APR. Interested? http://bit.ly/eh5HDk – @ByronTOrme investigates the short term loan lenders
http://twitter.com/trakgalvis/status/59225910720733184 Trakgalvis

RT @leftfootfwd: 4214 per cent APR. Interested? http://bit.ly/eh5HDk – @ByronTOrme investigates the short term loan lenders
http://twitter.com/adpucci/status/59231358526038016 Pucci Dellanno

RT @leftfootfwd 4,214% APR. Interested? http://bit.ly/eh5HDk @ByronTOrme investigates short term loan lenders @nick_clegg @RichardJMurphy
http://www.timworstall.com Tim Worstall

So they’re making excessive profits as a result of a lack of competition are they?

Great, set up in competition and with your lower rates you’ll make a fortune. Good luck to you.

Although do understand, lending small amounts of money to people for short periods of time is hugely, grossly, expensive.

For example, in your example from Wonga….they actually charge someone, in total, £47.48 to borrow £207 for 20 days. It looks huge as an APR of course. But are you sure that you could run a website, an office, collect your loan repayments, on such a sum?

You are? Excellent, I wish you luck in your new business adventure.

You’re not?

Oh dear.
Steve Kelly

Irrespective of what it costs, these short loan money;lenders are no different from the ILLEGAL sharks that prey on poor people. They should be categorised in the same way and outlawed. They are offensive.
Dave Citizen

@ Tim

So your faith in the wonders of competition convinces you that such rates are acceptible does it?

Although do understand that not all products are good for people or the society they live in.

For example, electrical goods with sub standard wiring are rightly outlawed – although competition may drive suppliers towards cutting corners, the good of people and society demands strict standards. Are you sure driving poor people further into debt is good for society?

You are? Excellent, I wish you luck when accelerating debt causes your neighbours to loose control. Perhaps you can talk them around with a lesson in the wonders of competition.
http://www.timworstall.com Tim Worstall

“So your faith in the wonders of competition convinces you that such rates are acceptible does it? ”

Yes. Anything else?
Tony Best

When your outgoings (which include your existing debt payments) exceed your income, you will find you have no money left. There comes a point that you will need to eat something. You know that using these these companies will exponentially increase the rate you are growing your unpayable debt, but you must put something in your empty tummy.
Dave Citizen

LoL
Keith

Tim,

Have you ever used one of these loan shark loan companies?
http://twitter.com/rorydalexander/status/61156851479363584 Rory Alexander

RT @leftfootfwd: 4214 per cent APR. Interested? http://bit.ly/eh5HDk – @ByronTOrme investigates the short term loan lenders
http://www.leftfootforward.org/2011/12/government-needs-to-find-a-way-to-tackle-high-cost-lending/ Government needs to find a way to tackle high-cost lending | Left Foot Forward

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