In a statement issued today, loans industry expert Gary Miller-Cheevers (and CEO of payday loan company Speed-e-loans.com) has welcomed the Office of Fair Trading’s (OFT) conclusions of the long-awaited High Cost Credit Review*.
He said: “We are pleased that the OFT report finally agrees with the long-held views within the payday and short term credit industry that products such as payday loans validly fill a void in the financial market place. Furthermore, the OFT points out that these attract few complaints, and that customers generally feel that they are treated fairly**.
“And the OFT’s decision not to cap interest rates on so-called high cost credit products means that cash-strapped consumers will continue to have a choice. A cap on interest rates would only see certain credit providers alter their product structures by charging additional ‘fees’ that a consumer would have to ultimately pay for.
“This way, it is easy for consumers to compare interest rates among the different providers, without it being clouded with extra fees, and choose the most appropriate solution for them”.
Mr Miller-Cheevers added however that he did take exception to payday loans being labelled as ‘high cost credit’ saying that in fact, borrowing money using his service, for example, could often work out cheaper than using a bank overdraft***
He explained: “Our typical APR (Annual Percentage Rate) is 2334%. This sounds horrendous. However, you have to bear in mind that this is the annual rate someone is charged, and payday loans are not designed for long term borrowing. It’s a bit like buying sausages in a supermarket and the price being shown per ton!”
He summarised: “When looking for credit, the APR charges should be put in to context. If they are in any doubt, consumers should always make sure they know exactly what they’ll need to pay back, including any fees, before they sign on the dotted line”.
Ends
*High cost credit is defined in the OFT report as financial products including home credit, short-term small sum lending such as payday loans, pawnbroking, and rent-to-buy retail credit.
** The OFT’s High Cost Credit Review said that “the markets for high-cost credit work reasonably well” citing how: the level of complaints from consumers is low; they fill a gap in the market not served fully by mainstream financial
suppliers; and there is evidence with some products that lenders can be sympathetic with repayment difficulties and may not penalise borrowers when payments are late or missed.
***Example of how APRS can be misleading
With the Speed-e-loans payday loans service we charge the equivalent of around 1% per day plus a one-off funding fee of £4.95 for a loan that is meant to be repaid in less than 30 days.
As an example, a loan to pay an urgent mobile bill of £100 for 20 days (until next payday) would cost £25.94 in fees and charges. For this we have to quote an APR of 2686% according to the ‘rules’.
Now take the same customer who needs £100 to pay an urgent mobile bill and goes overdrawn. If that overdraft is unauthorised, Halifax will charge £5 per day for up to 20 days, thus £100!
This is nearly four times the charges of our payday loans service, and yet the Halifax APR is quoted at 0%. This is explained on their website that as they charge fees and not interest, their EAR is 0%.
Overall, Speed-e-loans.com charges £25.94 and Halifax charges £100. Yet the Halifax are the ones showing a 0% EAR.
For more comparisons, please click here: http://www.speed-e-loans.com/high-street-banks.html
