It’s good to know that we’re all in it together, as David Cameron and Nick Clegg keep reminding us. However, I don’t suppose that they’ve ever been in a position where, at the end of the week, the coffers are completely empty and there are urgent bills to pay or food to be bought. Yet, in the current economic situation, more and more people - especially as low-income working families discover the real impact of benefit cuts – find this is the reality.
Our TV screens are filled with those adverts from companies who are only so, so willing to provide a quick loan to tide us over until the next wage packet comes in. The sharks have arrived. The temptation is enormous.
In 2006, the payday loans industry was worth about £350,000 a year; last year, it had increased to more than £2bn. Interest rates can be 4000% and more. Nearly half the people taking out payday loans are doing it to pay off another debt – usually one with a vastly lower interest rate.
A year ago, I called on the government to take urgent action to cap interest rates on loans. Bluntly, the whole business is just obscene. But, I’m sorry to say, the government has refused to act. The Office of Fair Trading has done a few spot investigations on some lenders about loans being given without checks being made about the ability to repay. Wonga – the biggest shark - was censured for employing “aggressive and misleading” debt collection practices. But that isn’t the real issue.
Even the Channel Islands have refused to issue banking licences to these payday lenders. So, why isn’t this government acting? Well, it doesn’t look good that Wonga was paying the Conservative Party to meet government ministers last month. And Adrian Beecroft, who earns millions in dividends from Wonga and donates some of those to the Conservative Party, was the person commissioned by David Cameron to recommend that protection for workers from unfair dismissal should be lessened. And now we learn that one of David Cameron’s key advisers has left to join Willy Wonga’s money-making factory. Bluntly, it smells.
The only good news on these issues is that UNITE, the trade union, is actively exploring expanding the ability of credit unions to offer short-term loans at low interest rates.
However, I repeat some simple advice for people who might be tempted by a payday loan:
“Don’t do it. Don’t even think of doing it. If you’re struggling with debt, go to your local CAB now before you do anything else.”