Corrosive Pay-Day Loans Should Stop

This letter appeared in the Financial Times Monday 26 November 2012

With his assertion (Letters, November 22), that APR calculations are meaningless and that banks charge even more on occasions, Errol Damelin, chief executive of Wonga, is trying once again to defend the indefensible. May I remind your readers why Wonga and the other 50 pay-day loan companies are not operating on the continent – very simple, Mr Damelin and his peers would likely be in prison under usury laws, if they plied their trade in Switzerland, Austria, Germany, Netherlands or the Nordic countries. Contracts that bear exploitative interest rates, generally above 15-20 per cent cannot be enforced in law. Repeat offenders, who try it, get a prison sentence. Maybe it is no coincidence that the above countries are the so-called creditor nations in Europe.

Usury laws protect the socially weak, uneducated, desolate and weak-willed from predators. There seem plenty of those around in the UK to feed this market. It is high time that the government acts against them, and at least they are prevented from advertising – their products are more socially corrosive than cigarettes or alcohol.

Letter in the Financial Times regarding payday loans by Bob Bischof

Steve Mann's reply in the Financial Times
Steve Mann’s reply in the Financial Times

Hit the Loan Sharks

Published 23 Jan 2012, Daily Mail, Letters to the Editor

Sir

James Coney in the Money Mail 18th January 2012 (“Banks can easily fix this flawed system”) highlights rightly the fact that the system is geared towards “the vulnerable paying for the better off”.

However, this is only the tip of the iceberg. Banks, Credit Card and Store Card operators, Mail Order companies and worst of all loan sharks and those known by a camouflaged name, the so-called Pay-Day loan providers all work on a similar principle. They can afford to lend money out indiscriminately at exorbitant rates, as these include provisions for defaulting customers: The higher the risk, the higher the interest rate. They are exploiting the socially weak and uneducated by luring them often  into spending money they do not have and  in the most expensive way. Frequently they are driven  deeper into debt and in the end it is invariably the state that has to pick up the pieces with social welfare support. It is a disgrace of the first order and one of the reasons for British private household debt to stand at 1.5 trillion.

The Mail has often been critical of European ways – I wished it could break with this tradition and start a campaign to outlawing this practice of exploiting the weakest group in society. Countries like Germany, the Netherlands, Switzerland have tough usury laws to protect this most vulnerable group. There any contract or deal that carries interest rates above 18-20% pa are nil and void and unenforceable in court. Repeated offenders can be imprisoned. It is noticeable that the above mentioned countries are also those doing reasonably well in the present economic climate.

As this proposal would put half of Britain’s financial services operators behind bars, a law like this would have to be introduced over time and with decreasing rates starting maybe with 30%, which put at least an immediate end to the horrible loan sharks.

Bob Bischof

Bob Bischof Letter printed in the Daily Mail January 2012
The letter as printed in the Daily Mail, 23 January 2012