Unite Union on Payday Loans

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The following report is a quick overview into the recent case study done on the rise of payday lenders across the UK by the union Unite. We have summarized the golden nuggets to save you some time and keep you informed. If you would like to read the full report please feel free to download it using the link in the top right of this summary.

They start of by stating that Unite is the biggest union in the UK and gives us some insight and general facts that caused alarm for them to take the stand that changing the regulations of payday loan industry was needed;

Unite was extremely concerned about the rise of payday lenders, and the amount of money its’ member were losing by taking out these payday loans. To quote Unite “The industry’s shocking growth can be seen on the high streets of our towns and cities, where they offer easy access to credit but at an extortionate cost”, and “we are extremely worried that hardships are being exploited by the high cost – high profit – credit industry.”

Unite said that their union members reported that falling incomes and the rise in cost of living were causing genuine problems with their finances. Unite was also concerned about the fact that one in 20 families now relies on payday loans( Aviva Family Finances report -10 July 2013) and the average borrowed was around £326 per month and many were unable to make the payments.

They were concerned with;

  • Alarming debt collection methods.
  • Adverts suggested that borrowing was easy
  • Evidence of poor credit checking.

Some interesting statistics mentioned on the first page of the report was;

  • In 2004 the industry was worth £100 million; in 2009 that figure shot up to £900 million.
  • 2013 the estimated worth was set between £2.2 and £4 billion.

Here are the highlights of Unites’ argument that regulations needed to be enforced with more authority;

The union claims that the industry was born out of weak regulations and then they give us a short explanation as to the origins of payday loan companies;

This type of credit originated out of the demise of “salary lenders” in the United States after deregulation measures in the 1980s. However, as state usury laws in the US began to tighten, lenders now backed by large financial corporations began to move abroad to sell on other markets. The UK, with its light-touch financial regulation ushered in by the Thatcher government, was a perfect target.

To Unites’ concern, payday lenders target the most vulnerable in society in order to sell loans at very expensive prices.

Unite then argues that payday lenders contribute hugely to the UK’s personal debt mountain, they give us a few very relevant and interesting statistics;

  • Personal debt stood at £1,424 trillion in the UK – including secured debt mortgages.
  • At the end of April 2013 outstanding unsecured (consumer credit) debt was £157 billion.
  • Each household still had around £7,900 in unsecured debt
  • UK consumers among the most indebted in the world.
  • According to the Office for National Statistics in January 2013 non-mortgage borrowing rose by £400 between 2008 and 2010, to £3,200.
  • Research by Which? in November 2012 found that half of all borrowers who have taken out a payday loan knew they couldn't repay and as a result 57 per cent missed payments.
  • Stepchange , the debt charity, saw between 2011 and 2012 an increase of 109 per cent in the number of clients who had problems with payday loans. In that same period of time the average amount owed increased by £390. They found that the average monthly income of a client with payday loans was £1,320, but the average payday loan debt was £1,657.

They then gave us some insight on the results of a poll Unite did on its members in 2011 on how they were coping with austerity.

  • Respondents told them that they were borrowing £200 per month, mainly from payday lenders.
  • When they asked the same question in 2013, the amount borrowed per month had risen to £326.
  • Members also told them that their money ran out on the 21st day of each salary month, prompting them to name the fourth week ‘Wonga Week’. It was extremely concerning that workers were borrowing what amounts to one week’s worth of wages every month to get by.

Unite then also expresses concern with Britain’s banks’ exclusion and lax rules, saying that this made it paradise for legal loan sharks. They then quoted Margaret Hodge MP when she said that “regulation of the payday lending industry has been ineffective and timid in the extreme”.

They then explain the problems that the industry is causing and describes them as a social and economic drain;

By making a reference to a recent survey carried out by Citizens Advice in May 2013, they put the spotlight on an “out of control” lending industry. They consider that lenders have sold loans to under18s, people with mental health difficulties and even customers who were drunk at the time. This was contrary to any responsible lending criteria, and should therefore have been dealt with rigorously by the authorities.

Unite then concludes by saying that the payday lending industry cares little about the problems it causes and here is a summary of the steps they suggested;

  • Give the Financial Conduct Authority the use of its power to cap the cost of credit at a rate that is found reasonable
  • Properly define what a payday lender is so when new rules emerge companies cannot find loopholes to avoid regulatory scrutiny.
  • Enforce a cap of three times on the amount of occasions a person can roll over on a loan (take out loans to service existing loans), matched with a period of tailored financial advice and a suitable debt repayment programme, inclusive of cooling-off periods, as well as a referral to a local credit union.
  • The government should also determine a limit on the number of times a person can take out a payday loan before they are referred to financial advice.
  • The Treasury Select Committee should conduct an immediate and full inquiry into the size of this industry, including its wider effects on British society and financial good health.
  • The Football Association should act to restrict payday lenders’ sponsorship of football clubs.

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Writen By:

Jim Cook

Jim cook has been in the financial sector for over 10 years. Specialising in the payday loan sector.

Published in Research & Data

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