Payday Loans and debt slavery

Quote

“Debt, n.  An ingenious substitute for the chain and whip of the slavedriver.”  Ambrose Bierce (The Devil's Dictionary, 1911)

News

Britain’s Office of Fair Trading (OFT) has referred the entire payday lending industry to the Competition Commission, based on a recent review.  The value of the industry has spiralled from £900 million in 2008/09 to £2.2 billion in 2011/12.  Up to 2 million people currently take out these short term cash loans to make ends meet, at interest rates of typically 25% per month.

 

When made and accepted responsibly, payday loans can be an alternative to unauthorised overdrafts for urgent cash needs.  However, 28% of these loans are not repaid at the end of the month but are rolled over, when the costs start to spiral.  Loans that are rolled over – often because borrowers could not afford them in the first place – provide almost half the total revenues of the industry.

Part of the OFT’s criticism is on how payday loans are sold – emphasising the speed and simplicity of getting cash, rather than the costs and risks involved.  Only 74% of lenders run affordability checks on new clients; the figure falls to just 23% in the case of extending a loan.  This suggests that lenders may not rely so much on prudent lending to ensure high repayment rates, but on their debt collection methods.

Another major criticism by the OFT is that many of the organisations actually making the loans are concealed behind intermediary companies, agents or brokers.  Borrowers have to reveal all their personal details, including mobile phone number, email and address, while the actual lender remains obscure.  This relational distance is part of the reason why the number of complaints against lenders has increased 10 fold in the last 4 years.

It is an indictment on our society that we allow the normalisation of business based on exploiting people’s naivety, hardship or desperation.  Unmanageable debt is a major cause of mental health problems and relationship breakdown.  Debt carries a relational as well as financial cost; alleviating it warrants both kinds of response.  

Read on…

An offshoot of the Occupy Campaign in USA is an imaginative project to buy up a bundle of unpaid medical debts for a fraction of their face value, then cancel them.  Read more about the Rolling Jubilee initiative here.

Walk the talk

There are a growing number of charities that help people manage their debts – providing relational support as well as financial advice.  Could you do something to support one in your area?

The last word

From the Bible, Proverbs 22 verse 7: “The rich rule over the poor, and the borrower is slave to the lender.”