Article: Payday loans

My second article on Comment Central was about a topic close to my heart: payday loans.  For as long as I can remember, I’ve had a “difficult” relationship with money and have had some very close shaves with payday loans.  I’ve never taken one out and, hopefully, will never have to because these things are, quite frankly, abhorrent.

You can find the original article by clicking here.

If living beyond our means is the root of today’s economic woes, then news that 3 million people will resort to payday loans this month requires some attention.

These short-term unsecured loans, usually of around £300, can carry interest rates in excess of 4,000 per cent. The payday loans table on gives some stark examples: a 15-day, £300 loan from costs £345 to repay.

Despite their high cost, payday loans are particularly appealing to those with poor credit ratings, and for those who can’t extend their overdraft or credit card limit. Unfortunately, they often find later that a short-term cash fix brings long-term repayment problems (as leaders attending Friday’s euro summit know).

Lenders apply higher interest rates to customers at a higher risk of defaulting. This is a basic economic function. But they should be expected to lend responsibly. If we have truly learnt our lesson about the dangers of irresponsible lending at a national and international level, then we should change our attitude to lending at an individual level.

On November 21, an early day motion was tabled by David Morris MP:

That this House notes that is currently advertising a typical interest rate of 4214 per cent. and that this is not the only institution offering a similar service; further notes that these high interest rates are often paid by the poorest in society; believes that all financial institutions have a right to make a profit but that these companies are adding to poor families’ financial problems; and further believes that the time is right to restrict the level of interest that can be charged on loans.

Unfortunately, to date, only 28 MPs have signed the motion.

Elsewhere, Martin Lewis, founder of, generated 100,000 signatures on an e-petition for compulsory financial education in schools – something that would surely be more useful than education on the risks of gambling.

It is important that future generations are better educated on financial matters, but the problems we face with debt require action today. Schoolchildren aren’t borrowing money – adults are.

Limited financial advice is available from the Citizens Advice Bureau and the Consumer Credit Counselling Service, and from some credit score websites. There are also some good tips available on, the Government’s advice website. But there needs to be more.

Payday loan companies need to better inform their customers about risks and costs. The Government too should make people more aware of the risks, especially in the run-up to Christmas.

Extortionate borrowing costs are harmful to the financial health of the country. We have learnt from the financial crisis that failure to repay loans means someone else picks up the pieces further down the line.

But the fact that companies are still able to offer short-term loans at such extortionate rates suggests that we haven’t taken this lesson to heart. The Government must examine the costs of payday loans. Our attitude to debt has to change.