Payday lenders ordered to freeze interest rates for struggling borrowers
I was watching “Newsnight” earlier this week and was very interested in the discussion about the relative moral challenges of paying people “cash” to avoid tax. I am sure that in many rural places a lack of mainstream services leads to more cash in hand and bartering than may otherwise be the case. I think it is one feature of the notion of embededness – the study of how social traditions condition living arrangements and social relations in places.
Clearly there is little justification for any form of major tax avoidance around the cash in hand culture – but the idea of finding ways to legitimise some of the activities which take place in what is euphemistically called the “informal economy” could lead to a reduction in benefit claiming and some better regulation of very dubious working practices.
One of the issues which forces people into the informal economy is the lack of alternatives for bridging short term financial problems. This article explains how the “pay day loan” one highly dubious alternative to the informal economy is starting to look at some form of reform. Until something far more radical than the measures announced below is implemented, I for one will not be surprised to see the current informal economy grow and thrive as things get increasingly worse economically.
“One hundred payday and short-term lenders must freeze interest and charges for struggling borrowers, under rules introduced by their trade associations.
The measures are part of a customer charter drawn up by four trade bodies – the Consumer Finance Association (CFA), British Cheque and Credit Association (BCCA), the Consumer Credit Trade Association (CCTA) and the Finance & Leasing Association (FLA) – and implemented on 26 November. The 100 lenders who are their members represent 90% of the total short-term loan market.
Under the charter, lenders must:
• Give clear information about how a payday or short-term loan works and an example of the price for each £100 borrowed, including fees and charges
• Not pressurise customers to take out a loan or extend (roll over) the term of an existing loan agreement
• Carry out a sound, proper and appropriate affordability assessment and credit vetting to check that customers can afford the loan
• Set out clearly how continuous payment authority works and the customer’s rights to cancel this authority, so they can decide if this type of repayment is acceptable to them
• Notify customers at least three days in advance of recovering payments through a continuous payment authority
• Freeze interest and charges if a customer is in financial difficulty and making payments under a repayment plan, or after a maximum of 60 days of non-payment.”