THE DEATH of a man who set himself on fire after being pestered by payday loan debt collectors has placed the spotlight on short-term lenders.
Antony Breeze, 36, of Bolton, covered himself in petrol and set himself alight in August 2012 after being bombarded with text messages from debt collectors seeking to recoup the £1,600 he owed.
It’s the latest in a long line of incidents which have put payday loans in the headlines.
According to the Office of Fair Trading, the payday loans market is currently worth up to £2.2 billion, providing up to 8.2 million new loans a year.
But are payday loans a friend or a foe to the African Caribbean community?
This type of lending has been prominent since the beginning of the credit crisis in 2008, when the market was worth only £900m, as banks became much more selective about who they lend money to.
SHORT-TERM
Campaigning UK consumer charity Which? states that payday loans are designed to work as a short-term advance to tide recipients over until the next pay cheque.
Such loans should be used to cover emergency situations, such as car repairs or boiler break-downs during winter.
Funds are usually paid straight to the recipient’s bank account upon approval. Many payday loan companies allow recipients to choose the repayment period, rather than at the time of receiving their salary.
The payday loan repayment, plus interest, is then taken directly from recipients’ bank accounts on the due date.
The Consumer Finance Association (CFA) - which represents short-term lenders – told MPs last week that not all those who received payday loans were “vulnerable”, as it presented the findings of the largest-ever study on the credit option.
The CFA argued that its members provided an essential service to three main groups of customers, who have become disillusioned with mainstream lenders.
HELPING
The three groups identified were: ‘tech-savvy’ 25 to 35-year-olds who tended to be single and did not own their own home; 35 to 44-year-olds with children who used payday loans to cope with household bills; and ‘burdened baby boomers’ who were financially helping their parents and children.
The report said: “These groups are challenged but they are not vulnerable. They are intelligent, financially-savvy consumers who are making critical, proactive and positive financial decisions every day to help them live within their means.”
With unemployment and debt an increasing issue for many in the black community, payday loans are seen as a viable option for many families.
Nearly half of all black males aged between 16-25 are unemployed, while 17.7 per cent of black women face the same fate.
According to the Joseph Rowntree Foundation, two thirds of those applying for jobs fail to get even a response.
When there are substantial rises in electric, gas and water rates, coupled by inflation of 2.8 per cent which lowers the value of your hard-earned cash, it becomes understandable why more and more people are lured by short term credit.
Borrowing between £100 to £1,000 is not necessarily a life-changing amount, but large enough to make it hard for individuals to borrow from family or friends at short notice. Under such circumstances, a payday loan is seen as the most suitable option since it eliminates the embarrassment of asking relatives or friends, limited or no credit checks are done and approval and disbursement are done within a very short time frame.
Doesn’t sound so bad, does it? So why are ‘normal’ people doing themselves mental or physical harm or even committing suicide?
The Citizens Advice Bureau has accused lenders of pushing people into debt by failing to check borrowers’ ability to repay.
BORROWERS
In a CAB survey of 1,270 payday loan borrowers who had loans from 87 payday lenders, 65 per cent of them did not get asked about their financial situation.
Short-term loans carry high interest rates, in some cases as much as 4,000 per cent. The result is that many borrowers find themselves taking more payday loans to pay off a previous one, leading to the start of a vicious debt cycle.
The CFA has admitted to underperforming, especially when it comes to assessing affordability, giving clearer guidelines on repayments and providing structured repayment plans as well as free debt advice for those struggling with loans.
In response, Delroy Corinaldi, director of external affairs for StepChange Debt Charity, said: “It is welcome news that the CFA recognises that there are problems within the payday industry.
“[It] must now show that it is prepared to match its rhetoric on addressing these failings with strong actions targeting those lenders who fail to adhere to industry codes of practice.”