/ Money

Can payday lenders be competed out of business?

Closed shop sign

News has hit the headlines that Wonga made the equivalent of £1m-per-week in profit last year. In our latest issue of Which? Money we looked at whether payday loan providers can be competed out of business.

There’s plenty of evidence that the payday loans industry does not serve people in need of cash well. So it’s commendable that the Church of England is throwing its weight behind credit unions – a type of community bank – as a possible alternative.

Now daytime television, the internet and even football teams are awash with payday loan adverts – whereas most people would probably struggle to tell you what a credit union is, let alone identify one near to them. More fundamentally, though, the services they both offer are totally different.

Payday lenders versus credit unions

Payday lenders are appealing because of how easy and convenient they are – a click of a button and you can have instant cash. The process to borrow through a credit union is much slower – many are very small operations with only one or two offices, irregular opening hours and volunteer staff.

This is not to be critical; it would be great if more people used credit unions. What they often do really well is serve a person’s wider circumstances, rather than just handing them a loan and sending them on their way.

The reality is, however, that many people want or need access to cash as quickly as possible – no matter what the interest rate. And while payday lenders are only too happy to oblige, it seems unlikely consumers will go elsewhere. Perhaps opening up the Church’s doors to those in need of cash and a sympathetic ear to their struggles will shift people’s attitudes to borrowing. But it will take a long time before the payday loan problem washes out of the UK.


By the time someone has turned to a payday loan lender its probably too late to try and help them much. Financial awareness is something that many people don’t seem to have, and is something that needs to be taught at a young age.

I wonder how many of those turning to payday lenders don’t twice about the £30-40+ they spend a month on their must have smart phone or the further £20+ a month on a tv subscription. A few months without those would probably cover the loan they are now desperately in need of.

Banning them would solve the problem at a stroke and people would look to family and friends who will provide the peer pressure to reign in extravagant spending.

Given the businesses rely on advertising perhaps the first step is to either ban adverts or load a premium for anti-social items such as this , drink adverts , supplements ,etc.

Then add onerous conditions such as holding all recorded loans and needing them to be reviewed by a body of examiners. the effect of needing to review 50% of loans could be a sizeable dent in operating costs and also limit number of loans. The Government has been quite good at loading normal banks with lots of requirements ….

Payday lenders are better than traditional loan sharks.and it is incredibly naive to suggest that banning them would solve the problem.

Deliverable and sustainable reform and education is the way forward.

John Moppett says:
4 September 2013

Education is one answer, although I feel that expecting schools to teach this is unreasonable, they are there to educate, not provide life skills.
The real answer is to provide better support. Organisations such as CAP (Christians Against Poverty) can step in, talk to debtors and put things on hold while they diagnose the problems and put plans in place to get the customer debt free and working to a sensible budget.
Payday loan companies should be banned, they are as bad as the loan sharks, because they make huge profits, which they then squander on advertising to capture more victims.

One of the reasons that payday loan companies are thriving is because people are not being paid a living wage. Everyone can be caught out by an unexpected bill, or sudden redundancy. It is not always possible to immediately cut back on expenditure, tv and mobile phones etc tie people into contracts. These companies must be prevented from exploiting people,

Jane – Your comment about tying into contracts perhaps indicates that using PAYG and Freeview would take a lot of current and potential pressure off a large number of people. In my early working life I would actually sit with customers and discuss income and expenditure, and savings. With the aid of a budget account serviced from a current account I think a lot of people had a much more carefree life.

There is no earthly reason why this model should not come back into vogue. The practical reasons is that Banks have been hammered for interest on current accounts and numerous other points has neither the number of staff or inclination to get involved in a time consuming exercises that reduce their profit.

The easy and more profitable answer is give everyone a card and leave them to it and using the tougher recovery methods of card companies when things go wrong.

Personally I would be willing to give my experience to helping people get this right however there are problems. How to make out a budget is illustrated many times on the Web but the drawback is we have the most feckless unlikely to do it at all, and the lack of discipline of many to follow their budget spending.

One of the great benefits of the Bank administered budget was that come review or by going over the calculated budget limit there would be a discussion. : ) Nothing nasty actually as in those days we wanted happy customers . For those truly irresponsible removing banking facilities solved their overspending of money they did not have.