Why we're being mugged in the credit market
The Libyan people didn't need any help from our government in killing their reviled leader, Colonel Muammar Gaddafi. They just did it themselves. There you go, Cameron - the Big Society in action.
We don't hear much about the Prime Minister's Big Society anymore. As he cuts welfare services, maybe he's shrewdly decided to keep mum on his vision of how localism can replace the state. Very wise, if he doesn't want to spend any time soon hiding in a drainage pipe with his minions.
No, I'm not really suggesting that we might summarily execute David Cameron. What I am saying is that it's becoming increasingly clear that not only are we being asked to pay for mistakes of the political class and its mates in financial services, we're being ripped off even as we do it.
One place we're being mugged is in the credit market.
You may recall we taxpayers stumped up several tens of billions to bail out the high street banks after the crash of 2008. Then the banks disappeared with our money, effectively declining to lend it back to us. Enter the short-term loan sharks that charge annual percentage rates of up to 5,000% for borrowings over a month or two.
You think that's harsh and alarmist? I have the figures, from the Bank of England, no less. Since 2006, gross unsecured lending by the banks has dropped by 21%, while gross overall lending has risen by 6%. And who accounts for the booming market in credit that the banks aren't serving? Why, of course, like flies to a cowpat, it's the spivs and wideboys of the payday loan industry.
Some of you (many, I pray) may not be familiar with this ghastly business. Allow me to demonstrate. As I write, it's 6.23pm and I'm going to ask one of the online lenders for 200 quid over a month. Back in a sec... There, it's now 6.27pm and I've been offered £200 for 30 days, when I will have to repay £266.31. That's an astonishing APR of 4,214%. A few more clicks of the mouse and this back-street deal would be mine (I'm not telling you which provider I just went to but they're all much the same).
That's not all. Just as you click to accept the loan terms you may very well be offered 'extensions', which ramp the rates up even higher. Nice business to do people with!
Credit regulations in the US are these days very strict and other European countries have capped the APRs that lenders are legally allowed to offer. So be warned, there are rich pickings for the payday loan charlatans in the UK.
The payday loan cowboys will defend their revolting enterprise in a number of ways. They will say they are cheaper than some banks, which would charge £5 per day for an unauthorised overdraft. So let me get this right: "The banks are rubbish, so we can do what we like."
Nice. Or they will say there is a ready market for their services.
Well, there's a ready market for crack cocaine, but that doesn't mean we should approve of it. And they will say that 95% (or whatever) of their customers are "satisfied". I daresay most clients leaving a brothel might be satisfied but it doesn't mean it's done them any good.
But it's okay, because apparently we're all in this together. Though, come to think of it, I don't suppose Mr Cameron and his family have ever met anyone who has taken out a payday loan at usurious rates. So don't expect any government action against this nefarious industry any time soon.
And that, ultimately, is the point. This is a class issue. Payday loansters are preying on the poor - an increasingly vulnerable demographic at the bottom of society's pile. And that's a shameful aspect of this financial crisis.
Short-term cash loans designed to be borrowed mid-way through the month to tide the borrower over until they next get paid, whereupon the loan is settled. Generally used by people with bad credit ratings and/or no access to short-term credit such as an overdraft or credit card. Like logbook loans, this type of borrowing is hugely expensive: the average APR on payday loans is well over 1,000% and in some instances can be considerably more.
An overdraft is an agreement with your bank that authorises you to withdraw more funds from your account than you have deposited in it. Many banks charge for this privilege either as a fixed fee or charge interest on the money overdrawn at a special high rate. Some banks charge a fee and interest. And other banks offer a free overdraft but impose very high charges for exceeding the agreed limit of your overdraft.
This is used to compare interest rates for borrowing. It is the total (or “gross”) interest you’ll pay over the life of a loan, including charges and fees. For credit cards where interest is charged at more frequent intervals, the APR includes a “compounding” effect (paying interest on interest). So for a credit card charging 2% interest a month (equating to 24% a year), the APR would actually be 26.82%.