Could payday loans freeze you out of traditional lending in future?
The general consensus at the moment is that banks are run by a bunch of bankers. You’d think we already knew this, following the 2007 debacle, but apparently it takes behaviour of the bottom-feeding variety recently exhibited by Barclays to make us really take notice. According to moneysupermarket.com almost a fifth of us (18.6%) have lost faith in our bank. Still, we are more likely to get divorced than change our bank account- most people change only once every 26 years.
Although there are no rate-fixing or computer muppetry allegations here, GE Money have now shown us their true colours by conveniently ignoring their own heritage and their market. The sub-prime lender has announced that it will not lend to customers who have had, and paid off, a payday loan in the three months prior to application. That’s right, a loan company who specialises in lending to people with no money is discriminating against people with no money. Great work. GE will also snub those who have taken out two or more loans over the course of the previous year.
GE Money have been collecting information from credit reference agencies about applicants and their payday loans since May, and a spokesperson for the company said they considered the use of such loans as "indicative of financial stress". Because everyone else using a sub-prime lender is completely financially relaxed, obviously.
"As a responsible lender in a challenging market, we review a range of data to make prudent mortgage lending decisions. Payday loan data is one of many items included in this review, and if a mortgage applicant has a current, or had a recent, payday loan, it is unlikely that we will consider their mortgage application," they said. Of course, before the dawn of the age of payday lending, the highest and most extortionate rates of lending were normally to be found on store cards, at more than double normal card lending rates, many of which were provided by GE Capital, also part of the GE group.
And this current issue may, yet again, be partly the Government’s fault for meddling. After pressing payday lenders to share more information and allow responsible lending decisions, it seems this information may be used as a get out of jail free card for lenders who are understandably reluctant to lend money, despite Government mandates that they should.
If it was just one sub-prime lender, perhaps no-one would care, but it seems that the payday scourge cannot be scrubbed clean in mainstream lenders’ eyes either. Although the big names like HSBC, Nationwide and Halifax have denied that payday lending will affect an application, unless it is outstanding and will therefore be assessed as an existing obligation, the reality may prove somewhat less clear cut. One case suggests that a decision-in-principle with Nationwide was overturned owing to a number of settled payday loans by the applicant. Nationwide deny this was the reason, explaining to the Guardian how “payday loans may have been a contributing fact in rejecting the applicant, but it would not have been the only reason for refusing him a loan. If they had more than one, we'd look at it manually, but as long as they've had no problems we would still lend to them."
But should payday loaners be able to get access to mortgage finance? What about genuine one-offs, or temporary difficulties owing to redundancy or unemployment? Surely these people can’t all be written off? Isn’t this just playing into the hands of loan sharks and further payday loans at 4000%+? Let’s all go bank with Dave instead…