Payday loans aren’t all bad?
Payday lenders have received a pretty bad press recently, with even the fluffy Citizen’s Advice sinking their claws in. But as some people have pointed out, notably Wonga founder Errol Damelin, these firms are providing a service that (some) people actually want. So someone decided to find out what payday loan users themselves thought about it all.
The uSwitch survey found that almost half (49%) of payday loanees were pleased with their experience, with 30% of customers saying they would take one out again, and 19% saying the short-term loan helped solve their financial problems.
Some commentators have described these findings as a boost to the payday loan industry, but the figures actually show that 51% of people using a service are not happy with it. Would any other industry get away with running a business on such poor satisfaction levels?
The reason, according to uSwitch’s personal finance expert Michael Ossei, is that consumers are caught between the rock of escalating living costs (up 25% in five years) and the hard place of being refused traditional lending
“The need for short-term loans is escalating and those most in need of money, often with poor credit ratings, have been turned away from the banks and left to feel they have no other option,” he said.
The uSwitch’s survey also revealed that 29% of customers regret taking out a payday loan in the first place and that 18% said a payday loan made their financial worries worse.
The payday loan industry is already under OFT investigation over shoddy practices and around 15 payday lenders have left the market after warnings from the OFT, which referred the sector to the Competition Commission in June. The OFT described the payday market as the most "non-compliant" it had ever seen.
So what do you think? Are payday lenders merely filling a gap in the market or should something be done to force banks to provide emergency funding for those in need? Should we bother trying to help the people taking out these loans or do they need to learn for themselves? Will the Government’s proposed new financial education programme prevent a new generation of people getting sucked into the payday loan trap?