I don't disagree, but perhaps those APR rates exist as a threat, and as a reflection of the risk these lenders are taking.

If Charlie the Chav has blown his wage on City vs Arsenal and needs £100 to get through the month, he can go to a payday lender and borrow £100 for 7 days with a £25 charge. He knows he probably won't be able to pay it back and 50% APR on such a small amount is peanuts. He doesn't care. However, the threat of that small amount exploding massively in no time is the whip to ensure repayment in most cases - and of course it makes the lender a tidy sum if Charlie doesn't repay in time.

At least if someone finds themselves owing thousands to a payday lender due to horrible mismanagement of their money, or just plain fricking stupidity, there are debt management schemes around. A street lender wouldn't be so sympathetic.

But, using your example, if you don't buy your mate a pint the following week, he won't start adding pints until it reaches the stage where you have to keep him in beer for the rest of his life.

As I said, I don't have a problem with them making a decent amount on a short term loan. If they want to charge £50 for a one week loan of £200, fine. What I have a problem with is what happens if the loan isn't (for whatever reason) paid back on time. I don't think it's right or moral to keep piling interest on top at the same huge rate until a £200 loan becomes a crippling debt for the individual concerned.

I appreciate what you're saying about personal responsibility too, but not everyone has the intelligence or common sense to work out what the consequences might be if they don't manage to make the payment on time. And sometimes people are just desperate - is it morally right that companies should add to that desperation for the sake of a quick buck?

I note he hasn't expanded on that statement.

Damo's idea of 'voluntary work' probably differs to the rest of us. He probably sees getting out of bed as work on a voluntary basis.

I'm sure they do, I just think there should be a limit as to the level of that threat. The punishment has to fit the crime, so to speak.



Whilst 50% APR might be peanuts on a one-off basis, it might focus Charlie's attention for the next time he takes out such a loan. If he has two or three loans all accruing that rate of interest, it might not seem like peanuts. And from the lender's point of view, it won't be peanuts when added up over their entire customer base - particularly if they charge a one-off fee for the initial lending. There's also a case for saying that they're more likely to eventually receive payment if the APR is a little more reasonable. If the debt spirals too quickly, it becomes unmanageable almost immediately, giving them less chance of a positive outcome.



There is that option, but I don't think it's the case that everybody who finds themselves in financial difficulties falls into the category you've described.

Wait a minute. What if you said, you owe me a pint a week until you pay it back? Or something? Why - if you don't pay him back - should your mate be out of pocket for a prolonged period at no cost to you?


I understand the point you're trying to make, but the loan company is not adding to desperation, it is lending £200 for a week on your agreement to repay £250. To imply that in fact they are knowingly "adding to desperation" would be silly. Why would a business lend to someone who it knows or strongly suspects can't repay?

I agree that the APR calculations are irrelevant. In the example, I would presume the loan company has an accurate model of how mnay borrowers are likely to default, even if it can't predict which ones, and the idea would be to make sure that the £50 "takes" you DO get back come to enough to cover the cost of the loans you have to write off, plus whatever profit margin. The £50 is, to me, more of an insurance against the risk of defaults than true "interest". It is, on any view, high risk and totally unsecured lending.

i don't like it, but so popular are these sort of lenders that it must be plain wrong to assume that all the thousands who clearly use them are across the board all desperate people.

Companies like Wonga or Charlie the money lender?

He shouldn't. But equally, I don't believe he would/should add to the debt as significantly as these companies do.



They know that a percentage won't be able to repay within the agreed time scales, and it's what happens then that bothers me - not the £50 charge for the initial loan.



As I said, it's not the £50 that they make initially that bothers me - it's if the customer can't make the payment for whatever reason, the 4000% APR keeps accruing until they do. It then becomes very relevant.



I agree. Which is why I never made such an assumption. Some will inevitably be though, and probably a greater percentage than any other lender's customers.

Kick in the bo[ill[/iocks or poke in the eye?

More like a CCJ or two broken kneecaps.

I'm amazed that people seem to ignore the good old-fashioned pawn broker, their rates are usually far and away better than any payday loan, advancing money on a credit card or even going overdrawn

Yeah, perhaps they weren't the best examples. I suppose the point I was making was, just because there are worse people to borrowing money from, doesn't make the working practices of Wonga and their like acceptable (to me).

Personal debt IS the PRIME cause of the financial crisis.

I agree.

The bullying of Damo on this site is out of order.

As for Sal Paradise "I offered him a job" I would be sceptical about a job offer made through an internet forum. If Damo had a legitimate job offered that he didn't take then its up to the benefits office to apply sanctions.

It's an easy argument for those in employment to say that the unemployed should be forced to do some crappy wage slave labour job that has no prospects and is probably time limited, as punishment for being unemployed, but I wonder how many of them would actually do the same if they were in those circumstances. It's easy to say but another thing to do, as the middle class ex finance/law professionals in their 30s/40s/50s that got made redundant in the recession (or aftermath) found out.

Not really. The banks gambling with sub-prime debt is.

Do you right the Daily Mail? Only yesterday they were accusing Tesco of irresponsibility by selling discounted chocolate bars. Appraently, that's what makes people fat. Not the fact that they buy them and stuff their faces with them.

People make their own choices and should accept the consequences of their decisions.

It's the way to fund investment in manufacturing rather than living in a "consumer" society.

But how are those jobs paid for?

No it is sub-prime debt that's the issue. The banks playing around zeroes out.

I was unaware that the Dally Wail had been wronged but thanks for introducing a straw man, how very Dally of you



People are accepting the consequences of any decision to borrow, unfortunately they are also living with the consequences of casino banking too. Not only are people repaying their own debts, they are funding the extravagant lifestyles of the those who got us into this mess

I don't even know what your second sentence is supposed to mean. As regards your first one, I've yet to hear a single commentator say that the prime cause of the crisis was personal indebtedness. Most mention it as an aggravating factor only.

We could start by closing tax loopholes for the likes of Tesco and Vodafone. We could continue by making those companies pay their employees a living wage so that the tax payer didn't have to subside their profits via tax credits and whatnot.

What do you mean by casino banking?

But that's contradictory. If the companies were taxed more heavily that would mean they had less avaiable to pay wages. So, I can only take it that you mean public sector jobs. That smacks of a society without personal freedoms and with a small minority dictating to the majority about what they should do in all facets of their lives. That sysyem has ffailed around the world. Free trade and freedoms go hand in hand. So, we should be promoting free trade (albeit with the state punishing miscreants heavily).

Yes it is down to sub-prime (ie very risky) debt but the implication that it's the fault of reckless individuals is designed to get the banking sector off the hook.

The reason the financial institutions went into meltdown was because they developed - and were permitted to by poor regulation - financial instruments to disguise the riskiness of debt and then sell it on.

From the perspective of a lender, if you lend to a 'high risk' individual, you can charge a higher interest rate so this is preferable. In the industry they have a term NINJAs which means No Income No Job or Assets, so if you lend to a NINJA the odds are you ain't getting the loan back. But you can charge them a high interest rate and so you have that contract worth repayments at a high interest rate.

If I lend £10000 to a NINJA over 10 years at an interest rate of 15% then I have a contract for repayments worth over £40000 so if I offer to sell that to you for £20000 then I am doubling my money instantly but that's also a good deal for you because you pay me £20000 now and have a contract that entitles you to repayments over £40000 over the years. However if you know the circumstances of the borrower you will not touch it with a bargepole as you know that contract won't be worth the paper it's written on when the NINJA defaults and you have no way of getting recompense as he doesn't own anything you can take.

However what if I make loads of loans to NINJAs and also loans to more reliable borrowers, then I offer to sell you a security that offers lots of small shares of the repayments of multiple loans, that sounds better, for one there are more borrowers involved so you are spreading your risk, also it is difficult to determine from that how risky what you are buying is. In fact I probably got it checked by a credit rating agency and they couldn't see anything wrong with it so rated it at AAA so you bought it. In this way I can make a lot of high interest loans to NINJAs then sell on the debt so that someone else is holding the timebomb when they all default, and I make money. This is what banks were doing and they had an easy way of getting debt off their books because someone else would hold it. So they aggressively targeted the NINJA market to make loans, then sold them on in disguised form. Except because they were all doing it and large banks have many different parts, sometimes the toxic packages they were selling on, would end up being bought back by a different part of the same bank, after being passed around the markets. So when the defaults started to roll in the banks had all infected each other.

From the point of view of the "free market", this is a classic market failure because it is one of 'imperfect information' - sellers had a means to withold information about the riskiness of debt from buyers, and so it created a huge moral hazard problem where banks had an incentive to directly make loans to people that would not repay them, so they could sell them on and make a quick buck whilst someone else held the risk. Now the banking sector is trying to turn round saying "its down to people living beyond their means".

Its the equivalent of if you got an inheritance of £10000 and I offered to keep it safe and pay you 10% interest on it a year, then I lend that out to a homeless person and charge him 15% interest, except he disappears and i can't trace him. When you ask me what has happened to your money, I can just say "a homeless person borrowed beyond his means....blame him, its not my fault".

Really? You think Tesco and Vodaphone are not making huge profits then?