Credit Unions Last Defence Against Pay Day Lenders

The news that more than one million people have taken out Pay Day loans to the value of £1.2Billion may have surprised many people but not the people working in the 400 odd credit unions in the UK.

Pay Day lenders have been progressively removed from most states of the USA where credit unions have been campaigning for controls on their activity and the shockingly high interest rates that they charge.

It is now common knowledge that the vast majority of Pay Day loans are used to pay off other Pay Day loans. This means that what on the surface is a small loan to tide a borrower over a difficult month ends up being the first in a long line of loans the people find it impossible to repay.

The reason why they are so difficult to escape from lies in the interest rates that are charged. 2,500% interest is not untypical and they are often higher.

Nicola Wareing Director of Credit Union Solutions who provide the administration for five credit unions said.

“Part of our work is to examine members’ bank statements to ensure that they have enough disposable income to repay a loan and it is becoming quite common to find references to five or six pay day lenders. The sad thing is that a quite small loan gradually gets larger and larger until a very large percentage of their wages are used attempting to satisfy pay day loans.

Employers are often very surprised when we tell them that their staff are using pay day lenders because they believe that they pay their staff well and that any loans they may need will come from high street banks.

Unfortunately with banks not lending or charging very high interest rates people are getting drawn towards pay day lenders who are not interested in whether their clients can afford a loan at all.

Credit unions by contrast are interested in their member’s ability to repay and link that to very affordable repayments linked to low interest rates.”

Graham Tomlin CEO of Credit Union Solutions added.

In the 19^th century we had laws to prevent usury and it is disappointing that the call for reinstatement of those laws to curtail interest rates of 2,600% is falling on deaf ears.

It is doubly disappointing that moves to add personal finance education to the GCSE maths curriculum were abandoned just before the election. Clearly that was good news for lenders because the last thing that they want are customers that have enough savvy to work out interest payments.

Credit crunch added to personal finance ignorance will dramatically increase financial exclusion in the poorest parts of the UK and that is why the credit union movement must act to provide an alternative to pay day lenders. Our client credit unions offer very small loans that can be repaid over 24 months with payments of just one or two pounds a week so that interest on a loan of £100 repaid over 52 weeks is just £13.

13.47% is a much better deal than 2,600% and its just a shame that we cannot afford the television advertisements.”