If you’re a lender in the payday loans sector, managing your exposure to risk is a very different proposition than it is for most lenders.
While equivalents in other sectors – such as subprime mortgages – have all but fallen by the wayside, payday lending is a growth industry during the continuing economic turbulence.
But the more people need payday loans, the less reliable they are to repay what they borrow, which leads to the industry’s risk level being closely aligned with its growth rate.
Now, figures from the Money Advice Trust’s National Debtline service show that things are reaching a critical point, making it more important than ever for lenders to protect their own interest.
The Positives of Payday Loans
Payday loans are often reported negatively in the press, because of a short-sighted view of their annualised interest rates; however, nobody is supposed to take a year to pay back a payday loan.
As the name suggests, they should be paid back, in full, as soon as the debtor’s next pay cheque arrives – and should not be thought of as a long-term way to live beyond one’s means.
If they are used as they should be, they can plug the gap in months when several red-letter bills arrive at once, or when other unexpected costs need to be met, and the debt can be cleared once the next month’s pay is received.
Abuse of Payday Loans
Far from using this facility as intended, it appears a growing number of people are taking on levels of debt they simply cannot afford to repay.
Joanna Elson, chief executive of the Money Advice Trust, says: “Some callers [to the National Debtline] have taken out as many as 80 such loans.
“Borrowing on this scale can have serious ramifications if not dealt with properly.”
She adds that the Money Advice Trust “encourage the OFT to protect consumers by suspending the licences of those lenders shown to persistently break the OFT’s own guidance on debt collection”.
For those working in the industry, it might seem more than a little unfair to call for licences to be suspended because of customers who are incapable of protecting themselves, and who ultimately take on more debt than they can afford.
Protecting Your Interests
The objections raised by the Money Advice Trust seem to stem from two sources: firstly, the extending of credit to individuals who are already heavily indebted; and secondly, the debt collection activities employed by payday lenders.
Most of all, we are on the side of the lenders when it comes to reclaiming what is rightfully yours – and when the law is on your side, we will help you to get back your funds from those customers who are unable to keep control of their exposure to debt.