1 Although the phrase “cycle of debt” is a favorite among industry critics, it is not based on the truth. Researchers and American state regulators consistently report that 70-80% of customers use payday cash advances between once a year and once a month.
It is important to understand that a payday advance is not meant to be a long-term loan. What a payday loan has done is assist millions of families with emergency needs. This means that a payday advance is given only under the agreement that it will be paid off on the applicant’s next payday (hence the term, payday advance). Short-term loan providers also operate a rollover service to help keep the payday advance applicant from being stuck in a long term, high interest rate loan.
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2. All operate as loan sharks
A payday loan provided by a reputable payday loan or cash advance company does not take advantage of people. It is meant to be used only for a short-term emergency situation by employed persons who need a little bit of help between paydays for emergencies. This is a very common occurrence when most families live pay check to pay check and may not be financially prepared for emergency repairs, travel or medical expenses. In reality, quick payday loans fill a necessary component in the economic world.
3. Rude employees
Payday loan companies do not compete on the price of their loan; therefore, it is important for them to compete on other aspects of the service to create a competitive advantage. One of these ways is through customer service and to ensure all employees are financially knowledgeable and are fully qualified for the job to certify their customers are given an excellent customer service. This is further enhanced through the recording and monitoring of telephone calls in and out of the company.
4. Target vulnerable people, the poor etc.
Payday advances are marketed toward subprime clients without a distinction in employment or culture. In fact, payday loans are marketed toward those people earning between £10 000 and £25 000 per year. Most payday advance members are under 45 years old and all applicants are currently employed with a steady income and have an active checking account. In reality, payday advances are meant for working adults with an immediate emergency need that cannot be satisfied through bank and union loans.
5. Hide fees and have high interest rates
The payday cash loan facility is required by law to disclose any application fees, interest rates and other fees. In accordance with OFT guidelines, it is a legal requirement that all fees and rates must be clearly outlined and disclosed to the customer.
A payday loan does have high interest rates. This is not because the lender is trying to take advantage of emergencies, but because they are a short-term lender. The payday loans are meant to be short term loans, not long-term loans that are constantly refinanced with monthly statements. This means that the payday loan company assumes greater risk at the same profit level as other financial institutions.
6. Threaten customers with coercive collection practices
Short-term loan providers are committed to collecting past due accounts in a professional, fair and lawful manner involving no criminal actions. In accordance with BBCA’s guidelines, companies in the UK may not pursue criminal actions against a customer as a result of the customer not repaying their loan. If absolutely necessary and after all other approaches have been tried, the lender may turn the issue over to a collection agency.
7. Operate outside the OFT guidelines
All short-term loan lenders should follow OFT guidelines and are dedicated to practicing all practices and collections in the best way possible. The company strives to educate the consumer and to make sure that our borrowers clearly understand the payday loan process. This is in accordance within the customer selection criteria in a Responsible Lending policy.
Many posts have been written on consumer forums about how payday loan lenders are unethical and immoral for taking money from people who need it the most. This is not the objective of payday advances; these short-term loans are meant to tie over consumers until payday and be paid back on time. One loan provider operates a ‘Responsible Lending’ policy, listed in this policy are guidelines stating that the company’s charges are transparent and only lend to customers who can pay the loan back. The company also offers a payment plan option if customers are unable to pay back the loan on time; this allows them to pay back a small amount per week which the customer can afford.
Short-term loan lenders who offer payday advances have also been seen to partner with a charity to match customer donations made through the website. For example, one lender has partnered with Starlight Children’s Foundation to match the 50p donation, customers can choose to make on their interest payment.
9. Adds unauthorized charges to accounts
Payday loan providers only charge customers what they owe, and do not want to charge customers more for their loan. All companies’ ethical practices and responsible lending policy ensures customers only pay back the interest payments and charges which are relevant to their account.