When it comes to controversy within the financial industry, no form of borrowing attracts as much attention as payday loans. Major lenders have taken a hammering in the press, while politicians have openly discussed ways in which the industry can be better regulated. Invariably, this has left many consumers cautious of short-term loan companies and their ethics.
Even the most ardent supporter of payday loans and the benefits that they can offer to consumers will concede that there are fundamental issues within the industry. In the most part, this relates to third parties and affiliates profiteering from poor advice and lousy service. While lenders work hard to offer better levels of service and improve the information available to consumers, there still appears to be some who work against the grain.
Tarred with the Same Brush
The pollution of search results and regular advertising across all channels does little to help convince detractors that payday loan companies have their customers' best interests at heart. However, this over-simplification and effort to demonise all lenders may well be proving a little short-sighted. After all, it is a service that many borrowers are increasingly turning to with alternatives to standard lending few and far between. In short, there are both positives and negatives to consider.
Invariably, not many of the positive elements of these services are promoted in the press. For instance, where else could somebody with a low credit rating get a few hundred pounds to tide them over until their next salary? Most banks will ignore any such requests and credit unions aren't always able to help. Often the only real alternative is to pawn items or get a short-term loan.
If that loan is then used to cover food bills, prevent charges for exceeding an overdraft or ensuring a car stays on the road, then it's difficult to argue that it hasn't served a useful purpose. Of course the counter argument is that any such loan comes at a high cost, which is difficult to refute considering the incontrovertible evidence on display. However, alarmist claims of 4000% insurance are a little wide of the mark. APR is far from the best measure of any short-term lending practice, mostly because it only reflects an annual rate of borrowing.
Miscommunication, Misinformation or just Mis-selling?
Many people probably aren't even aware that some payday loans are only charged at around 1% per day, or 20-25% in total. While this isn't cheap in conventional terms, this isn't a conventional form of borrowing. Consumers need to know what they're getting into and should take note of all the costs and implications of borrowing before taking the plunge. For their part, payday loan lenders need to ensure that information is provided upfront and assistance is available to consumers wherever possible.
In the meantime, it would appear that the name of payday loans and the companies involved in the industry will remain tainted by negative connotations. Whether this will stop in the near, or even the distant future is certainly up for debate. Every time a lender sponsors a major sports team or runs a major advertising campaign, it appears to attract more criticism than any other industry - including standard banking, gambling and alcohol distributors. While a lesser of two evils argument is flawed, public perceptions can change in time. Perhaps, one day, payday loans might start attracting positive headlines. Just perhaps.