Payday Loans

Payday Loans

I believe that it would be socially beneficial if the rapacious activity of the payday loan industry could be reined in. Though it is possible to argue that these companies serve a useful, even a necessary, purpose, it is nevertheless clear that it is only the desperate (or the foolish) who use the loans. Meanwhile the general public wince at the extortionate rates of interest; it is painful to watch; it seem no less brutal than trussing a weak man and pulling out his toenails. But the evil goes further. The near indigent find themselves on a downward spiral of debt from which there is no (legal) escape.

My remedy is fair, logical, and (with a stroke of the legislative pen) could be made legal. It is not hyper-novel as it enshrines a principle accepted in most civilisations from Roman times till the modern barbarism of the capitalist era; the distinction between usury and capitalism.

As soon as the accumulated interest paid on a loan equals the amount borrowed, the loan should be regarded as discharged. A low interest rate (say,  inflation plus 1%) should then replace the original high rate, but calculated back to the beginning of the loan. 

It can be argued that a high rate of interest is justified if there is a high risk that the principal will not be repaid. That cannot be argued as soon as the borrowed sum has been repaid. Suppose I borrow £100 at 10% per month interest. If I pay the lender £10 a month and keep up the payments for 10 months, the loan company will say that I still owe £100, as I have only been paying the interest. But I will have paid £100, and to my way of looking at it I will have repaid the loan, but not yet the interest. It cannot be argued that I am a high risk, so the due interest should be a trivial £5 (if 5% p.a. Is appropriate).

Ian West, 12 Longhirst Village, NE61 3LT