The product may be controversial in the U.S., but payday loans are thriving in the U.K. Photo Credit: Wikidenizen/Wikimedia Commons/CC-BY-SA
Payday lending in the United States is the subject of some controversy; some states have banned them and many call for the federal government to do the same. The small loans have been thriving in the United Kingdom, despite the same objections there.
Small loans thriving as Britons need credit
Many feel that payday lenders charge interest rates that are far too high and that businesses prey upon the needy. Though those assertions by critics are debatable, what is not is that the product and the providers are entrenched, both here in the United States and abroad.
Payday lending has sprouted internationally. In the United Kingdom, payday lenders are thriving, according to The Guardian, as a survey by the charitable foundation Shelter estimates almost 1 million Britons used a payday loan for household expenses last year.
[Personal loans can be just as convenient as payday loans]
Shelter also estimated a further 6 million people used other forms of credit, such as credit cards, personal loans or deliberate overdrafts in order to fund a shortfall at some point.
Sizable number in financial trouble
The Shelter survey found, according to the Daily Mail, that out of the 4,000 people it surveyed, 15 percent had to go into debt in order to make mortgage or rent payments due to a short-term gap in finances during the past year, including 2 percent of respondents who had resorted to using payday loans.
A large number of survey respondents had been expecting a raise that never came, due to pay freezes being instituted for public service workers making 21,000 pounds per year (about $32,000) or more. According to The Guardian, many of Britain’s payday loan operations are branches of American businesses, which have opened branches in the United Kingdom because of less restrictive banking laws than in the United States.
Sub-prime credit lending there is booming, as the alternative financial credit industry lent 7.5 billion pounds in 2010. Payday lenders accounted for 1.9 billion pounds, an increase from 2009 of about 700 million pounds.
Still controversial in the U.S.
Consumer advocacy groups and citizens are calling for stricter regulation of payday lenders by the Consumer Financial Protection Bureau, though part of the laws governing the agency prohibit the agency from governing interest rates, according to BusinessWeek. Whether the new head of the CFPB, Richard Cordray, will take any action against payday lenders and other unsecured credit providers remains to be seen.
Sources
Daily Mail: http://www.dailymail.co.uk/news/article-2081880/A-million-Britons-payday-loans-help-pay-mortgage-costs-just-year.html?ito=feeds-newsxml
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