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Some saver sites endorse payday loans

Herald Scotland, 10 Nov 2012

Websites offering discounts and cashback on a range of purchases from clothes to washing machines have been a lifeline to Scots in the recession.

But The Herald has discovered several companies in the money-saving sector endorse payday loans, now blamed for a personal debt epidemic that is spreading to Scotland's middle class., which claims more than four million members, is allowing dozens of payday lenders to advertise on its finance pages, while people can earn up to £50 at leading sites Topcashback and Quidco when they take out short-term loans with Wonga or one of its many copycats on the market. These controversial lenders claim they can approve smaller amounts of cash in much quicker time than the banks, tiding you over till payday.

But Glasgow Credit Union warned last week that repayments can spiral out of control due to high interest rates and lax regulation over the number of loans an individual can have. In the past six months alone, the organisation has seen a huge rise in the number of people needing help with payday loan debt, fast replacing credit cards as their main source of financial difficulty. It adds that some 40% are well-off professionals, including pharmacists, teachers and accountants, shattering the perception that such loans are only used by society's poorest.

June Walker, chief executive at Glasgow Credit Union, said:

It's shocking and irresponsible for money-saving sites to direct customers towards payday lenders. People in steady jobs are being told online borrowing is a quick and easy way to get cash, but they can become over- reliant on them. The interest payments can get out of hand after just a few months.

One of the biggest problems is that people use several new loans to try to clear debt accrued from a previous loan, but that can make things even worse.

Una Farrell, spokeswoman for the Consumer Credit Counselling Service (CCCS), added:

People can take out multiple payday loans because information about their borrowing situation isn't shared by different credit reference agencies.

One deal at gives consumers 20% off loan application fees at QuickQuid, which promises "10- minute money" at an APR of 1734%. Wonga, the industry's biggest player, charges 4214% APR for customers who want loans approved in 15 minutes. The industry is legally obliged to disclose annual percentage rates, which takes compound interest and fees into account, though Wonga insists it is a distorting measure for short-term loans. It says the true cost works out at 1% per day, plus a £5.50 transmission fee to get funds into bank accounts.

Wonga says it mostly caters to young, web-savvy professionals with access to mainstream credit and a regular income.

Ms Walker said:

We know younger people who think it's quite acceptable to apply for a payday loan just to go out on the weekend, without thinking about whether they can afford the repayments. The internet advertising is heavily targeted at young people, particularly on social media sites, and it's very good at not talking about the potential consequences.

Andy Oldham, managing director at Quidco, said:

All retailers operating on our site are licensed by the Office of Fair Trading. As long as consumers continue to seek such service providers, we will continue to ensure they can do so whilst getting the best deal in terms of discounts and cashback.

Topcashback said: "We have an unofficial policy not to promote payday loan companies prominently. We do not wish to encourage our members to use them, simply make it effectively cheaper for them if they feel that is their best option.

Many believe payday loans are flourishing as banks turn harsh on prospective borrowers, with only the cleanest credit histories leading to approval.

James Benamor, founder of the medium-term loan company Amigo, said last week:

Practices within this industry need to change so people know there are fair and reasonable alternatives for them if they're turned down for a bank loan.

He also says banks are "far from whiter than white" when it comes to charges, using sneaky fees to rack up the cost of loans. They might only charge 29.9% APR, but late payment charges, early repayment fees and admin fees mean you will to fork out a lot more than you signed for.

Amigo says an old-fashioned lending scheme, where family or a friend acts as a guarantor, is much fairer than the anonymous credit scores now standard at the banks. It can loan between £500 and £5000 on the same day at an APR of 49.9%.

But if you have a solid credit background, there are alternatives to a loan, such as authorised overdrafts and credit cards. Furthermore, credit unions are challenging payday lenders in the speed stakes, with one of Scotland's giants Scotwest granting an express, same-day, loan of £500 at 26.8% (the maximum a credit union can charge), so long as you sign up to become a regular saver, and you work for one of 87 selected employers across the west of Scotland

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