Thursday, 26 January 2012

Payplan's Payday Plot - the story behind the stats...

Payplan’s recent survey of its customers and online communities will no doubt have the statisticians up in arms. In the first week of December, John Lamidey, of the Consumer Finance Association, wrote off R3’s research as unreliable because he said the sample sizes were small.  

John is right, of course - people who use payday loans are a minority and debt focused organisations, like Payplan and R3, would like to keep it that way.  So, setting the arguments aside, what does Payplan’s survey tell us about people struggling with payday loans?



One in three in Payplan’s survey had used a payday loan
Payplan is one of the largest providers of debt solutions in the UK. As such, when 707 customers, fans or followers complete an online survey, you can be reasonably sure that the results are broadly representative of the people Payplan helps - they have problem debts. 

2011 saw significant increases in payday debt problems, not only reported by R3. For instance, National Debtline said payday problems had risen from 200 to 1200 calls a month between October 2010-11. With difficulties increasing on this scale, we need to consider the issues that Payplan’s survey found.  


Responsible lending deserves due credit
Responsible lending is at the heart of a credit agreement because it reduces the risk of debt. John Lamidey won’t argue with that and neither will Stella Creasy MP, who leads the campaign to cap high cost credit. Responsible lending can be summarised as:

transparency - the lender is not misleading or oppressive in advertising or selling credit 
affordability - the lender makes a reasonable assessment of the consumers’ ability to repay 
informed choice - the lender explains the key features of the credit on offer
terms & conditions - the lender ensures that terms and conditions are fair, clear and intelligible
suitable credit - the lender does not trivialise credit, treating vulnerable people unfairly 


Were lenders responsible to Payplan’s payday debtors?
You decide...

86% - used the money for essentials including food and paying bills
If you agree that borrowing to put food on the table, stick a quid in the meter, or keep a roof over your head makes you vulnerable, then you will also agree that payday loans were not suitable credit for more than eight out of ten of Payplan’s payday loan users.

69% - don’t know the rate of interest on their payday loan
Some lenders may be trying hard to explain the costs of borrowing, but over two-thirds of Payplan’s payday debtors did not understand this and did not make an informed choice.

61% - have taken out more than one payday loan at the same time
Lenders’ terms & conditions should set out the borrowers’ responsibilities to repay. However, almost two thirds of Payplan’s payday debtors were able to apply for several loans at once because credit reports for payday loans update very slowly. 

56% - over half owe more than £500 to their payday loan lenders
£500 is just under a third of the average monthly take home pay. Payplan’s payday debtors probably had other debts, because so many were paying for essentials with payday loans. It is unlikely that the affordability of their borrowing was properly assessed.

47% - have taken out six or more payday loans in the last 12 months
Almost half of Payplan’s payday debtors borrowed frequently to pay for day to day needs. This indicates a growing dependence on credit that raises questions about the transparency of payday advertising. 


Payday lending has a debt problem 
Where people differ is in deciding who takes responsibility - the lender, the borrower or both. We could argue, of course - quibble over facts and figures, while the number of people using payday loans cracks on apace. Or we could discuss how to manage this new lending phenomenon safely. Now, who doesn’t agree with that?

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