28. Pay Day Lending

Hi, I am Greg and I want to grumble about pay day lending. Maybe I spent too much time over summer watching sport on TV, but I got sick of being bombarded with advertisements offering me nimble loans or shouting CashTrain. I could also see a cash wizard, and if I couldn’t sell junk to Cash Converters I could perhaps get a loan there. So much cash available so easily (loans approved in less than 60 minutes).

Payday lending, that is, short term loans for relatively small amounts may be useful to get tide you over a cash shortage if something sudden comes up, but as Humphrey Bogart famously said in Casablanca, “for a price Ugati, for a price”. And what a price it is – interest rates equivalent to 48% per annum interest, plus an establishment fee of around 20% of the loan sum. Using one company’s loan calculator, a $500 loan for just over two weeks would cost more than a $120 bucks. And then there are extra charges if you change the term of the loan, or make late payments, or if they have to send you follow-up letters.

Of course, it is good that these fees are disclosed clearly on the company websites, but it is a bit nauseating when the companies trumpet that they are being upfront and that there are no hidden fees and charges. The disclosure is required by law and they don’t mention that their fees are often the maximum permitted by law. Or that the payday lending industry fought tooth and nail against better regulation and caps on when they were introduced a couple of years ago.

Despite the advertising, they’re not my best mate – my best mate wouldn’t charge me effectively 25% interest on a short term loan. But that is the point, people who are better off usually have access to credit or other financial resources. And those that don’t pay a premium for their poverty.

But maybe it is all ok. If I get into financial trouble, there is another whole series of adverts with the extremely rich Tammy May telling us that My Budget will sort out my finances – and add to hers.

There are better ways to help people struggling with sudden bills and cost of living pressures, but with private interests cashing in on poverty, I can only wonder how long it will be before charities’ financial counselling and assistance programs are seen as “anti-competitive”, or government funding of services is accused of crowding-out the private sector.

I am Greg and I am grumbling.


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First Broadcast: 11 February 2014