Raping the poor

“Psst!  Wanna loan?  Only 2500% APR …”

Payday loans are poisonously expensive debt wrapped in sugar-coated brand and service for poor and desperate people.  They’re innovative…and they stink.

The idea is to offer small, instant,  loans with terms of a few days or weeks to “hard working” (i.e. poor) people with an “easy” application process on a “friendly” website with an approachable brand.   This Wonga.com (daytime) TV advert captures the tone of voice:

Payday loan providers (or should that be “pushers”?) say that APR isn’t meaningful for a product with such a short-term.  On an annualised basis, it would cost over £1,000 to rent a DVD for a year, but nobody accuses Blockbusters of exploitation.  But then, nobody ever became dependent on Blockbusters.

An Office of Fair Trading report (here) shows that vulnerable customers often use high cost credit continuously.  A constant or frequent loan at 2500% APR or more is the financial equivalent of a crack addiction.

Payday loans are not the only businesses that make small, short-term loans to the poor.  So do credit unions and so does the Grameen Bank, the micro-credit institution founded by Nobel prize winner, Mohammad Yunus.  But whereas micro-credit lifts people out of poverty, payday loans can help lock them in.

What banking desperately needs in the post-credit crunch  social and political environment is the inventive product development of the Payday loan companies and the compassion of the Grameen Bank.

These loans are the evil twin of micro-credit, so the last word goes to Mohammad Yunus:

It’s not people who aren’t credit-worthy.  It’s banks that aren’t people-worthy.

About Simon Kirby

Digital strategist, CX advisor and agile Product Owner. My core expertise is aligning the political, strategic and human factors that determine the success of digital, CX and innovation projects. Doing that helps organisations deliver better experiences, happier customers, distinctive propositions and improved commercial bottom-line

One Response to Raping the poor

  1. Saurav says:

    Fair point on the locking desperate people into long term debt (despite the short term nature of the loans), but what is the root cause of this constant borrowing? At what point did the consumer – poor or rich – think that living beyond their means is a good idea? Need 70 quid? Go to the cashpoint and get it from your bank account. Haven’t got 70 quid in your bank account? Then wait until you do and then spend it.

    Continuing with the drug addiction analogy: no-one forces you to buy crack. If you make a conscious choice to buy the crack then you go in with your eyes wide open knowing you could end up getting hooked. By no means is this meant to exonerate the pusher, but then the addict shouldn’t play victim either, abdicating responsibility for his/her actions.

    Perhaps they are so desperate for funds that they don’t take time to look at the fine print, more commonly known as terms and conditions. Then they trot out the, “I didn’t realise, I didn’t understand” argument as if that somehow removes any of their responsibility to look after their own welfare.

    Which brings about a whole other debate about the welfare state and its abuses.

    However, for the working Joe that is trying to work for a living rather than sponge off the taxpayer, there needs to be a systemic approach to provide the means and incentive for Joe to remain in gainful employment, avoid debt, and support himself and his family. This would involve the banks working in conjunction with state bodies like the DWP to ensure the support is in place to allow Joe to avoid getting into the kind of debt you describe. Education on how to handle finances would be a start.

    However, the point about taking responsibility still stands because if Joe wants the wii and wants the Sky+HD and wants to go down to watch his premiership football team and fancies a skinful of lagers after the game then he’s going to find that without some discipline and self control all the goodwill, education, financial advice and micro-credit institutions won’t make a lick of difference. He’ll be in debt again.

    To change the analogy: You can lead a horse to water but you can’t make it drink. You can’t stop it drowning itself either.

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