As Christmas approaches, a large number of people will be looking for credit over the festive period. However I want to offer a Christmas warning about using payday loan companies – or what are commonly referred to as legal loan sharks.
Legal loan sharking risks putting people into a spiral of debt, with people having to take out other high-interest loans to pay off their existing ones. These companies prey on the poor and vulnerable and have in recent years began an extensive advertising and lobbying campaign. However there are very few people who do not have a financial stake in the industry who would stand up for the status quo.
I am a member of Haslingden Credit Union, a much safer, fairer and more ethical means of lending money for a short term. I urge my constituents to avoid using these high interest short-term legal loan sharks, and look instead to credit unions in the area.
There has been a cross-party campaign in Parliament to enact legislation that would cap the interest rates that companies are able to offer at a much lower level. As an illuminating international illustration that highlights the state of interest rates in this country, in Nigeria, interest rates are capped at 48% - in the UK there are lenders offering rates above 4000% (annual equivalent). This is nothing short of usury.
Most countries in the EU have placed caps on money lending, including Germany, Spain and France. In the USA, two thirds of states have introduced caps – in Florida the cap stands at 10% of the amount lent.
There has been some progress, and thanks to a vote in the House of Lords, the Government has agreed to give the new financial regulator the power to cap interest rates offered by legal loan sharks. Hopefully this will signal the end of this era of companies preying on and ripping off vulnerable people in the pursuit of profit.
To echo the Consumer Action Group “what’s good for them is bad for you”. Hopefully we can reverse this equation soon. In the mean time – please take care if you seek credit over the Christmas period.