Who's the winner in the new peer-to-payday loans genre?
Payday loans have been around for a while; so have peer-to-peer lending sites like Zopa (established in 2005). Now a new peer-to-payday hybrid has been conceived, which enables ordinary people to cash in on their less fortunate fellow human beings.
New site The Lending Well* offers investors the opportunity to lend between £100 and £250,000 to those in desperate need of cash in return for a return of 12% a year. The APR charged on the loans is, as for other payday lenders, expressed as a simple monetary value of £1 per £100 per day, which works out at an eye watering 2464.8%
But is The Lending Well just ahead of the game? Payday loans companies are now everywhere and have made their founders millionaires. Peer to peer lending has also been very successful, with names like Zopa and The Funding Circle leading the way. Last month, even the Bank of England's financial stability director, Andy Haldane, suggested peer-to-peer lenders could ultimately replace conventional banks.
But the attraction of peer to peer lending is that you can cut out the (evil) middleman of the bank. Rates are fair for everyone and everyone is happy. Surely peer-to-payday lending is going too far? Multimillionaire Tim Slesinger, founder of The Lending Well, thinks not. "I'm not going to defend the payday loans industry as there are lots of things wrong with it," he told The Independent, "but we think we can offer better terms to responsible borrowers.
Mr Slesinger also said the business will turn down 90 per cent of prospective borrowers, turning down people with loans elsewhere, for instance. "We're not looking to lend to the financially vulnerable," he said. "We want this business to be ethical for borrowers and lenders." Leaving aside for a moment the ethics of payday lending at all, is Mr Slesinger really suggesting that anyone who already has some credit will be refused? This criterion is nowhere to be found in its terms of business, and its website is very clear in not mentioning it:
"If you can answer yes to the following questions:
Are you over 18 years of age?
Are you a UK resident?
Are you employed?
Do you have UK bank account and debit card?
Are you borrowing for an essential purpose?
Are you borrowing an amount you can afford to repay on your next paydate?then it’s likely you will qualify to borrow from The Lending Well."
So is Mr Slesinger just naïve in thinking that those without other loans would need this form of lending over other, cheaper forms of finance? Will The Lending Well really not lend to those with other loans? Who knows. But perhaps more importantly, will people really want to make big profits (with returns of around four times current savings rates) out of those in the deepest trouble? Wouldn’t that make us as bad as the bankers? Or should we stuff them in favour of our own bank balances?
Perhaps we shouldn’t be surprised- and if this particular venture weren’t set up by a “UK resident” with substantial offshore company shareholdings, presumably someone else would. After all, if you are the facilitator, taking 2,464.8% interest and paying out 12%, while risking none of your own money, you’d be daft not to.
*I have not linked to the site, not because am necessarily making any judgement on the site, but because their terms and conditions state “You may link to our home page, provided you do so in a way that is fair and legal and does not damage our reputation or take advantage of it, but you must not establish a link in such a way as to suggest any form of association, approval or endorsement on our part where none exists” and I didn’t want to be accused of seeking endorsement…