BAD CREDIT PAYDAY LOANS

Bad credit payday loans are a title that has been bestowed on the payday lending industry for a long period of time. This need was identified after a long period of irresponsible functioning on the part of the payday lenders and the situation it had led to, with a majority of the payday borrowers ending up in different degrees of financial crises. The main issue with these “bad credit payday loans” was their absolute lack of commitment in ensuring the right quality of borrowers entering the borrowing market: quality with a specific relation to one’s capacity to borrow on a regular basis coupled with the capacity to pay back the loans within the specified period of time.

The payday lending industry wouldn’t have received as much flak as it has, if their terms of repayment weren’t this obscene. Giving out loans as high as 500 pounds, this may seem as a relatively low amount as compared to other financial institutions, but with the high APR which constitutes the basis for payday lending; this amount can turn out to be much higher than the original borrowed amount. This particular practice has demanded serious intervention on the part of the regulatory bodies to put a strict stop on their functioning by mandating certain regulations which have made it virtually impossible for many of the payday lenders to survive in the industry, resulting in only a few of the major payday lenders competing with one another.

This is the most apt indication of which direction the industry is going and how important it has become for the regulatory bodies to keep the lenders under strict scrutiny and this can only be made possible, if the regulations are mandated instead of being proposed, subject to amendment. The Financial Conduct Authority has made a significant step in this direction by capping the interest rates, limiting the rolling over of the loans to 2 times, and also restricting the number of times a borrower can take out a loan. This has made possible the long needed restriction on this industry which was imposed by the regulatory bodies which saw many payday lenders quietly bowing out from this market. This development can be amplified by the sheer panic that was caused by the 2008 mortgage crisis. This had led to mistrust on the part of the borrower in the major financial institutions and could only be salvaged by bringing in more regulated form of borrowing. On the contrary, payday lenders saw this as a significant opportunity and thrived on the vulnerability that had been created by the crisis to cater to the audience that was already reeling under the pressure of their artificially created poverty.

Where there was a need to bring all major industries such as these under the strict ambit of unbiased regulatory bodies, these industries were given a free hand to function. These payday lenders were popular because they required no credit check or were not concerned with the past credit history of the borrower, as long as he provided a sufficient ID proof. The criteria for such a loan in these uncertain times, was just an ID proof and a verbal promise to repay the amount within the stipulated period of time. As a result of this, the term “bad credit payday loans” was attached to payday lending.

It is not just the payday lenders who are responsible for the state of affairs that affect every single citizen, but the authorities are equally to blame, as they have allowed this to happen over the last 3 decades, going to the extent of introducing acts like the Monetary Control Act of 1976 which enabled these lenders to charge their own interest rates, immune to any regulation and gave them the additional benefit of operating in any part of the country irrespective of the regulation imposed by the state, making them free to charge any interest rate, as they please. This can be traced back as the history of the notorious Annual Percentage Rate, which is considered as one of the main problems associated with this industry. The Annual Percentage Rate has only become higher with time and is one of the main deterrents in ensuring people come out of this debt trap.

The worst problem is the lack of education on the part of the borrower, when it comes to payday lending. There have been several surveys that have been conducted by various authorities as well as individual organizations to gauge the response to payday lending by the borrowers and surprisingly enough, many of the borrowers have had a positive experience with the payday lending industry which could only point to the uncertainty and unpredictability of these loans. These borrowers could be people with a stable source of income with a valid bank account who are using these services “ideally” which are only in the case of emergencies. However, this still covers roughly about 15-16% of the population and not the entire population that their advertising caters to. Their advertising has been misleading to say the least, directed towards single income parents, teenagers with an unstable source of income, practices which have sparked serious criticism against these practices. Moreover, their fraudulence doesn’t seem to end there, with their repayment collection methods ranging from bad to obscene.

Due to a lack of internal resources, the payday lenders have outsourced their collection responsibility to third parties who are engaging in almost criminal activities with cases of stalking, mental harassment, stopping short of physical abuse which has put the borrower’s life at serious risk.

Conclusion:

This problem has been identified and now the authorities need to work hand in hand with various financial institutions to firstly raise the level of awareness amongst the borrowers and secondly expose them to more credible financial instruments such as credit unions, pawn-shopping, deposit direct advances which have less potential of destroying the financial ability of a borrower and at the same time, bring them to a level of financial harmony.