With wages falling, costs rising, and social safety nets being torn asunder – UK citizens are turning, in ever greater numbers, to pay day lenders to plug the gap. In the past, the poor were protected from predatory lenders by Usury Laws which made extortionate interest rates illegal. Yet in today’s Usury Kingdom, crime pays.
The Rise in Personal Debt
In the ten years between 1999 and 2009, the annual salary rose 13.6%. During the same period, house prices went up 130%, a loaf of bread went up 147%, and a litre of petrol went up 42%. This goes some way to accounting for the fact that personal debt rose during this period by 158%. Access to credit created consumer demand which concealed the gap between wage and cost of living inflation.
In the last five years, wages have increased by just 10%. The UK Essentials Index which focuses on the kinds of everyday items which the UK’s working and non-working poor buy showed an inflation rate of 33% during the same period. This means that for the poorest working people, their wages are worth 20% less than they were back in 2008.
Pay Day Lenders and Usury
Usury is the crime of charging an unethical level of interest on a loan. Pay day loans are typically between £50 and £1,000 over an intended loan period of a month (you pay the loan back on payday). The biggest payday lender, Wonga, charges 4,215% on its loans. If a lender took out £100 and took 3 months to pay it back, they would owe a massive £1,065. If they had struggled to find the £100 it is highly unlikely they would be able to find over £1,000. By six months, they would owe £2,107 and by the end of a year £4,215. This is Usury.
“We have uncovered evidence that some payday lenders are acting in ways that are so serious we have already opened formal investigations against them. It is also clear that across the sector lenders need to improve their business practices or risk enforcement action.
“I would urge anyone thinking about taking out a payday loan to make sure they fully understand the costs involved so they can be sure they can afford to repay it.”
The market has since run on, unabated. A recent Which? survey of payday loan customers revealed some damning results.
- Half (48%) of payday loan users have taken out credit that it turned out they couldn’t afford to repay.
- A third (29%) of payday loan users have taken out credit that they knew they couldn’t repay.
- In the last 12 months, more than half (57%) of people with payday loans have missed a payment and have incurred charges because of missed or bounced repayments (56%).
- Almost a third (31%) were hassled by debt collection agencies in the past 12 months.
- One in five (20%) have been hit with unexpected charges.
- Seven in 10 (69%) payday loan users say they have regretted taking out a loan or other credit product in the last year.
- A quarter (27%) of payday loan users have sought debt advice in the last 12 months compared to just 5% of users of any credit product.
The fact is, an increasing number of payday lenders are now becoming the first stop of the poor.
For a desperate person, this appears a satisfactory temporary fix – no background checks, no security, no endless processing at the benefits office. Do individuals bear responsibility for their indebtedness? Of course. But desperate people often make poor decisions. The question here is, do we really want to create a growth industry exploiting desperate people?
Payday Lenders Turning the Screw
The number of people seeking help with payday loan repayments has increased 300% in the last two years alone, according to the StepChange Debt Charity. In 2010, a little over 7,000 people approached the charity for help with repaying these high cost loans. Last year, more than 30,000 came seeking help. It is little wonder, given the increasingly aggressive behaviour of the lenders.
Wonga recently issued letters to customers struggling with repayments warning them that they could be guilty of committing fraud and that Wonga would contact the police if they did not act as requested. The OFT threatened the firm with a £50k fine is it sent out any more of the letters.
MCO Capital was fined £544k and had its consumer credit license revoked last year for failing to perform identity checks on loan applications, allowing fraudsters to borrow millions in the names of 7,000 individuals. However, MCO Capital continues to trade at a new website www.paycheckcredit.co.uk – with an average interest rate of 5,420%.
Usury is not a Victimless Crime
It is widely acknowledged that debt has an impact on mental health, and mental health issues can have an impact on a person’s likelihood to become indebted. Spiralling debt and the fear of debt propel people to make poor decisions which can limit and end their lives. A survey of people in debt by debt charity StepChange, revealed 78% reported that being in debt had reduced their self-confidence and faith in their ability to take care of their family.
36 year old father Antony Breeze died after setting himself on fire in public last October. He told a witness he’d ‘had enough’ of being chased relentlessly by debt collectors over a £1,600 debt, mostly from payday lenders. He had been receiving threatening phone calls and letters, and had lost a stone in weight in the fortnight before his death. The Coroner stated at the inquest into his death:
“His debts were not at a very high level, therefore I cannot understand why his debts would lead him to harm himself.”
The average wage for a coroner is £52,000 a year. Antony Breeze was working six days a week as a driver earning around £17,000 a year. Therefore his debts were enormous relative to his earning power – he would have needed to find the equivalent of almost two months take home pay to repay his debts, on top of paying his rent and other bills.
Antony Breeze is not an isolated incident.
Four months previously, a 48 year old man set himself on fire outside a Birmingham Job Centre after the government’s punitive fitness to work assessments saw him lose his benefits.
A homeless 18 year old poured lighter fluid over himself and set himself alight at a Torquay Town Hall after the office failed to house him.
A desperate dad took an overdose in response to his mounting debts. Payday lender The Cheque Centre continued to pester him on his mobile phone and withdraw funds from his bank account while he lay in hospital, despite his wife contacting the firm to let them know the situation.
18 year old Oliver Scott took his own life by jumping in front of a train after running up thousands in debt with Wonga, Cash Genie and Tooth Fairy Finance in just a few months.
You Can’t Polish a Turd
Usury was made a crime for a reason. Businesses can make a lot of money by issuing loans to desperate people at exorbitant interest rates. They can make a larger profit by the borrowers being unable to pay back the loan, so it is in their interests to target people likely to encounter trouble making their repayments on time.
These businesses are allowed to appear as ordinary, respectable organisations – when they are no better than back alley loan sharks.
Campaigning Labour MP Stella Creasy said: “It shows how out of control these companies are and the damage they are doing in their quest for profits from hard-pressed families. Further rises in the cost of living next year will mean more people seeking credit.
“The Government can’t expect us to put up with this kind of sickening behaviour from these companies for another year.”
Indeed, we cannot wait another year to bring an end to the Usury Kingdom.
If you are reading this and suffering silently about your own debts, please do not remain suffering alone. You can get help. Please call StepChange – the call is free from all landlines and mobile phones on 0800 138111.
Note of Thanks: Annie Maclean kindly donated the title of today’s blog.