Payday lenders Are Not Loan Sharks
Payday lenders and text loans lenders are being unfairly painted as loan sharks and criminals, leaving consumers confused about the difference between legal and illegal lenders, the industry’s umbrella group has claimed.
The payday lending sector has come under fire for giving people loans which turn out to be unaffordable, rolling over loans and charging annual interest rates running to several thousand per cent.
But short-term loan trade body the Consumer Finance Association (CFA) said the increasing use of the phrase “legal loan sharks” to describe payday lenders was causing confusion about the difference between its own industry and violent money lenders operating outside the law.
Russell Hamblin-Boone, chief executive of the CFA, said: “We do understand that the payday industry as a whole has some reputational issues but we think the term legal loan shark is confusing and dangerous because the public don’t know who they can trust.”
He added: “Illegal money lenders are completely unlicensed, unregulated and operate outside the law. They charge incredibly high rates of interest - the highest we have heard about is 11 million per cent - and often use threats and violence to intimidate people who don’t pay them back. Payday lenders are legal, regulated businesses that are increasingly responsible.”
Mr. Hamblin-Boone will call for help in highlighting the dangers of illegal loan sharks when he speaks to a Money Advisers and Revenues Practitioners’ conference in Glasgow on Friday. He said: “It is simply wrong to confuse consumers by equating responsible, legal payday lenders with violent criminals.”
The CFA recently signed up to improved codes of practice which included commitments to stepping up transparency and carrying out affordability assessments to make sure people can pay back loans.
The charter was agreed by four trade associations representing more than 90% of the payday and short-term loan industry and members must abide by the code or ultimately face expulsion. But consumer groups said the code was largely a rebrand of rules that have already been flouted and stricter action should follow if big improvements are not seen.
The Consumer Credit Counselling Service said earlier this month that it has already seen more than 2,000 people struggling with five payday loans or more this year.
The Office of Fair Trading is currently carrying out a compliance review into payday lenders and expects to publish its findings at the end of the year.
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