Julian Knight: The real scandal is not the payday loans, it is the attitude of the banks | The independent



At first, second, or even third glance, the rates charged by payday loan providers are shocking.

Designed to be short-term loans to literally help people until payday, they come with annual interest rates not in tens or hundreds, but in thousands of percent. In reality, the APR – albeit at shark-loan levels – isn’t as large as you might think because the loans are supposed to be there just for a week or two.

If, for example, you borrow £ 100 and pay off £ 120 a week later, that’s an interest rate that’s over 1000%, but it’s only £ 20. As the government agency Consumer Focus warns, however, more of these loans are rolled over – and not in some sort of lottery jackpot – so that a loan of a few weeks is topped up with another loan and and so on. At this point, as the loan continues to run, the fact that the lender is charging such high interest rates really starts to matter. This is a tactic “innovated” by home loan companies who regularly encourage their agents to offer new loans just as old ones start to run out.

Consumer Focus has called for payday loan companies to be required to refer borrowers for debt counseling if they need, say, five consecutive loans. Personally, I wouldn’t trust these companies as much as I could give them, and when it comes to ‘debt advice’ if they followed the lead of some of the big banks they would push their customers only towards advisors who charge fees, or consumers could fall prey to the IVA [Individual Voluntary Arrangements] providers – and then you’re really swimming with a whole new group of sharks.

What to do then? Ban these loans? Well, no, they are providing a service that a lot of people really need, and here is the crux of the matter – why do they need it? Part of it is zero pay – wages are falling rapidly behind prices in this country, and it, I think, will get worse. Other than that, however, it’s the problem of personal budgeting that’s a forgotten skill in this country, along with the big banks just not wanting low-income people through their doors. Banks are making all the right noises, but if an executive were to come up with a low-cost alternative to payday loans, or suggest that some suitable flexibility should be shown on bank charges, then they would likely be guided by security with their stuff in a box. The blame for the growing culture of payday loans in this country ultimately rests on the banks and their attitude doesn’t care.

A difficult sale

I don’t know about you, but almost every day my retirement income seems to be reduced. My personal pension statement has just arrived and I see that the amount of cash I can expect it to pay in retirement has decreased since last year, despite the fact that I have increased my contributions by almost 20%. The reason? Annuity rates continue to fall, so future income expectations also decline.

The pressure doesn’t stop there; I have two end-of-salary pensions, one with the BBC, which will decrease in value over time as annual increases are expected to be less than inflation. My other retirement pension is in an even worse situation, it recently had to be taken over by the Pension Protection Fund and I expect that over time the promises made will, at best, only be partly held.

It is therefore difficult for me to continue beating the drums for pensions. Okay, the tax break is a godsend, but you don’t know if the income you are promised today will ever materialize. And all the time, pension funds and ACIs say they pay more, so it’s no wonder that so many people want to go out on their own to buy property for rent, or even just to live here and now. Also, there are restrictions on getting your money back.

And in 2012, the Ministry of Work and Pensions would like to tighten these restrictions, despite the government making noise about wanting more flexible retirement savings. The DWP wants to ban people from switching from a last-pay pension plan to a personal pension. Why would anyone want to do this when final pay plans are by far the most lucrative pensions? Well, some fear their employer will go bankrupt and frankly don’t want to trust the PPF in 40 years (and I can certainly understand that), or they are in poor health and may get a higher income from an improved annuity. take their cash for their last salary and buy a pension elsewhere.

Yes, the number of people it makes sense to transfer to will be small, but loading another restriction is exactly what pensions don’t need; they’re already incredibly hard to sell, even for people like me, who still think they have a place.



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