Loans sham shows need to tackle debt
The story in this newspaper of the Lisburn man who was duped into paying £640 to secure a £3,000 loan is more than just another example of unscrupulous scammers at work.
Many of us may say that the man's action was foolish and that he should have been suspicious when asked for cash. But obviously he was in dire need of extra money and easy prey for those who take advantage of vulnerable people in these times of austerity. In those circumstances natural caution is easily suspended.
The man thought he was dealing with a legitimate payday loan company. Yet even they have come under fire from the Office of Fair Trading for widespread irresponsible lending and ordered to change their ways or risk losing their licence. This is a move which should be warmly welcomed by the public. These companies charge very high rates of interest which can led those in financial difficulties to get even deeper in debt.
To give an idea of the scale of the growing problem, here in Northern Ireland, 470 people asked for help from the Citizens Advice Bureau over payday loans last year. In 2011, it was just 60.
The OFT's criticism of the industry – after investigating companies accounting for 90% of the market – was scathing, saying it found evidence of widespread breaches of the law and regulations, causing misery and hardship to many borrowers. The Government plans to tighten up how the companies operate, but seems reluctant to punish those who breach the rules, merely saying it wants restrictions on how the firms advertise.
Tackling the problem means more than clamping down on payday loan firms. What the Government really needs is policies to lift people out of poverty and negate the need for them to get into debt at all. Many people feel that the welfare reforms will make the situation worse, rather than better. In the meantime there should be a cap put on these companies' unjustifiable interest rates, some of which would make a backstreet loan shark blush.