Are Payday Lenders to Blame for the Economy?

August 10, 2015 1:45 pm

Payday Lenders have become the scapegoat for the UK economy’s effect on our standard of living. The newspapers, radio, and parliament have been up in arms about the ‘legal loan sharks’ and their exploitation of the poor. The problem with these sentiments is that they do not represent that of those who actually use these lenders. In fact, they often come from individuals who have never used payday loans and will never have to – individuals who are seated on their financial high horse looking down on the struggling poor and lobbying to regulate payday loan companies into closure without offering any alternative for their customers. While these petitions are being signed and legislations are being passed, the social group on whose behalf all of this is being done is forgotten in a corner with nowhere to turn.

payday loans

Why do I feel the need to speak up? Because I am a payday loan user. Because I am a hard-working individual struggling with my rising bills. Because I see through to the root of my financial troubles, and it is not payday loans, it’s the economy. Let me begin my stating what appears to me to be an obvious fact but never gets mentioned in any reporting: No one wants to take out a payday loan.

Why would you? They’re expensive, intrusive and leave a black mark on your credit report. In fact, a quick search on any question & answer forum of payday loans will reveal many working individuals asking how to get one of these ‘legal loan sharks’ only to be met with other users advising them (I use the term loosely) that they are ‘idiots’, ‘morons’ and ‘deserve to have their money stolen out of their pocket’ without actually offering any advice on alternatives. So why would anyone want to become part of the idiots of society? Well, thats obvious – no one wants to, but sometimes they have to.

 

I am a 24 year old young professional who has been in full-time employment since 2010. Since then, my credit rating has plummeted from a fair (700+) to very poor (I’m too ashamed to check the points), while the number of payday loans I have has increased substantially. My financial situation is far from what I expected it to be when I left university, and I know several other friends who are in the same position. Still, I am not here to tell you how payday loans have ruined my life because they haven’t. Without payday loans I probably would have been fired from my job 2 years ago for not showing up to work as I wouldn’t have been able to afford the train ticket. Without payday loans I would have had to make an appearance in court for missed council tax payments. Without payday loans I wouldn’t even have my flat.

payday loan

I left University in 2009 but didn’t enter full-time employment for 10 months. During that time I was a struggling job seeker dealing with rejection after rejection, with no one seemingly willing to take a chance on an unexperienced graduate. My parents generously funded me during that time, paying for my housing in London and I took up a part time job in Marks & Spencer to pay for all other expenses. Finally in summer 2010 I landed a job, my dream job in fact. I moved immediately to start and my parents put me up in a B&B while I looked for a flat. One month later I was ready to move in to my flat, but there was one problem – the sum of a deposit plus one month’s rent upfront. Where would I get that from? The salary earned from my part time job barely paid for my transport and food each month. My parents were spent after subsidising me for so long – they still had my younger siblings to look after and their savings were dwindling quickly. Calls to my more distant family members topped up my deposit fund to £500 (all to be paid back) but I was still short £700.

My first step was to ask my bank. After all, I had been paying my part time salary into my account for 6 months and I had already paid in my salary from my new job. I could prove I was working. I hardly ever had bounced payments and I had been a customer for 5 years. Their application online was quick and easy and I asked for the minimum which was £1000 over 3 years – repayment terms that wouldn’t even make an impression on my disposable income. I was startled to see the declined notice returned only 10 seconds after submission. How could this be when I was bombarded with loan offers not 2 years before as a student at University who didn’t even have a job (all of which I declined)?

Of course, I now realise this was before the recession when loans were dished out like candy to anyone. Fast forward to 2010, 2 years after the recession when I so optimistically submitted that loan application and I suddenly became an unattractive customer even though I had no defaults on my credit report, had a full-time permanent job and had been a faithful customer.

I was really in it now, and every other bank I turned to met me with a similar answer. I inquired of the possibility of a pay advance on my salary to be told that they categorically did not offer those. I had exhausted all my options, save running to my parents in a flood of tears begging them to dip some more into their savings: ‘Who cares about my brothers’ futures – it’s all about me, Mum and Dad!’ But I was too independent. They had spent more on me than any of my siblings because I had been so promising at school. How could I ask for more?

I almost thought about quitting my job – how can I work with no flat, where will I shower? – but a friend I confided in told me about payday loans. I had never heard of them before, but he had used them when he was short of cash. He sent me some links to loan companies he’d used and I immediately applied. One common requirement was that I could prove I had a job through a wage slip or a phone verification by the reception at my work (not a very irresponsible requirement, is it?). I was approved same day but the £180 offered to me by Wonga was well short of my £700. I needed more, so I racked up two other loans – still short of the £700 but asking my parents for £150 to make it up seemed a lot easier than asking for £700. So how can I blame my financial hardship on the only lenders who helped to get me on my feet? My bank didn’t care that I had a job, that I needed a cash advance, or that I could repay it. I was boxed in their ‘no credit history – automatic decline’ rule with no exceptions.

I’m sure you’ve heard this story many times before, so I will cut to the chase – like most people with payday lenders, my debt spiralled. Regardless, I kept up with repayments and rollovers on time (and even early), not because of fear of what would happen if I didn’t, but because of the duty I had to repay the debt I had taken. As they grew I was left short and had to re-loan for increasing amounts, but I never thought about defaulting on my commitment. I treated those loans as I would have a loan from my bank, I promised to pay and I would pay. But regardless of my punctual repayments my credit history didn’t improve; it worsened. My (practically non-existent) attractiveness to mainstream lenders was tainted because of the black marks of payday lenders on my report marking me as poor and desperate. The injustice of it all forever ruined my faith in the banking system. I never wanted these loans – it was some cruel Catch 22 – I couldn’t get a bank loan so I turned to payday lenders but turning to payday lenders ensured I couldn’t get a bank loan.

I was in a never-ending juggling routine that peaked at the end of the month, consisting of re-loaning to make up for paying off loans and getting new loans to make up for the loans that now declined me (I was even unattractive to them). Rollovers temporarily offered me a lifeboat (the government wants to restrict this). All this time I kept up a charade to my parents that everything was perfect (smile through gritted teeth), and to my workmates that the only reason I wouldn’t go out to lunch was because I was on a diet (not because all my disposable income was taken up by my payday loans). The real picture was the sleepless nights and panic that ensued towards the end of the month, how would I pay this month? How would I make up the money?

It was getting too hard – I think every payday loan user gets to this point. The train that payday loans allowed me to get on looked much more comfortable to get under. Just a quick drop and then no more loans. No more applications and declines. No more scrounging at the end of the month. No more being a fake. No more being a failure. Two years working for an FTSE company with nothing to show for it. I resolved to get out of my payday loan trap. My dedication to meeting my repayment schedule, which ironically would have made me a top borrower if it was to a bank, was financially killing my credit rating because it was to payday loans. I spent countless hours researching my options and was advised by many users to go to the credit union that was created to help the ‘little man’.

Finally a glimmer of hope. I wasted no time. I signed up to my credit union, I sacrificed £50 to show I was willing to pay (a month worth of beans on toast was worth it). Once my account was set up and my initial savings in there I submitted my application with not a minute to waste. On the front page of my local credit union they talked of the danger of payday loans and how they especially wanted to save working people from this trap. They claimed they weren’t like banks, they were funded by the people for the people. Here I was, a prime example of someone who works hard, earns enough but got sucked into the ‘evil’ payday loans. ‘You will save me credit union’, I thought, ‘You are the financial angel I have been looking for’.

 

A week later I received an invitation to an appointment with a branch manager. He wanted more information. He needed 6 months payslips, 6 months bank statements, the details of all the loans I wanted to pay off (I was very upfront about my situation), and my repayment history with them. He needed much more than any payday lender ever asked but I would have given him my soul if he promised to help me get out of this mess I was in. On the chosen day I booked the day off work and headed to meet him. He was a charming working class man who wanted to hear my story, which I gladly divulged. ‘It’s a shame’, he said, ‘such a shame that these awful payday lenders should do this to you. It’s what the credit union is for: to help people like you. If it was up to me I would give you the money right away, but…’ But? Why was there a ‘but’? This was an open and shut case, I was paying 10x the amount I would be paying the credit union to get rid of these loans. I paid every lender on time, a proof of how trustworthy I was. Where was the but in that? But there was.

The but was that not everyone on the credit committee was like him. In fact, I was told that most of them were rich ‘respectable’ members of the community who did not understand situations like this. They normally only approve small loans, for example, in situations where someone’s washing machine broke down. They never had to deal with payday loans and they looked down on people who couldn’t control their finances. He understood me because, according to him, he was in a similar situation (albeit with mainstream high street banks), but he promised to try to make them understand. He ended the meeting by handing me some bankruptcy leaflets, which I didn’t take as a good sign.

Four days later I had an email from the credit union telling me upon review they didn’t feel it was right to lend me a loan. I wasn’t surprised, I was now used to being a financial undesirable. I paid my rent that month with a payday loan. The next month I began a debt management plan with Payplan. It will remain on my credit report for 6 years (I will be 30) and 4 months after it was put into place not all lenders have agreed and some are still chasing me at work and on my mobile. I have a missed call from one of them as I write this. When I think about my financial future it looks very bleak.

Right now you must be thinking how I can still stand up for payday loans. Well, because when I needed the help, they helped. They do exactly what they say on the tin. In fact it was when I turned to other lenders that I was let down, even lenders who promised to save me from payday loans wouldn’t put their money where their mouth was. I run a payday review site now, giving people who need payday loans real reviews because no one wants payday loans – they need it, and when they do they don’t need the elite telling them what not to do but not what to do. They need people who have been in the same boat, like me, who can tell them their honest experience with payday lenders.

As for the readers who turn up their nose at payday loan users like me, let he who has never borrowed money cast the first stone. We live in a society where we all live on credit. For some of you, maybe your holiday was bought on a credit card, or your car through a loan, and for most of you, your house was bought on a mortgage. Lucky for you, you had an existing borrowing history with your bank, you were in there before the recession, or you already have the savings or property to act as security. But for those of us becoming independent with no borrowing history after 2008 it’s a much harder place – we are told never mind what our salary is as we are lucky to have a job, our banks are unwilling to lend to us, our train tickets and utility bills increase 3 times that of our salary. We are living in an economy that we can only survive on credit but with only payday loans willing to lend to us.

So I say to Mr Prime Minister and those opposed to payday lenders who are ‘financially crippling’ us, what is your alternative? Maybe a concession to banks who lend to working individuals who need a cash advance, or the promise of an attachment of salary to lenders for borrowers with no/bad credit history in full time employment who can prove they can afford a repayments? There is no use saying to a starving man not to eat that poisoned meal without providing him an alternative. Though you warn him of the danger, his hunger will eventually overcome his will. That same desperation rests in us today, those of us who want to be independent and survive – are the payday lenders taking advantage of us or filling in for the government and banks who have abandoned us?

Payday Bank’s slogan is ‘working people deserve credit’. I agree whole-heartedly but it seems the consensus today is much different.

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