The council for Newham, one of the poorest boroughs in England, has approved a plan for an ethical alternative to payday loans. It will be a partnership between government and financial institutions like credit unions to give residents affordable credit. Called MoneyWorks, it will also give good advice to help residents make positive financial decisions on debt and savings, build their credit rating and end their reliance on exploitative finance.
Since last year, Britain has been on an offensive against payday loan companies some of which have had annual percentage rate (APR) of over 4000%. Yeah, I am not kidding. Since then many have closed down and large ones have been fined. The Money Shop have been fined £700,000 and Wonga have been fined £2.6 million.
In fact, Wonga is now available in Canada. A visit to their website shows that their APR varies from about 186% to 280%. As high as that is, it is much cheaper then their brick and mortar competition. They charge between 598% to 1300%. Yeah. Not kidding here either. In Canada. How is it legal? I don’t know.
I have said before, payday loans make sense in extremely limited situations where you are able to pay it back quickly and not rolling it over like many do. However, these are marketed to everyone. These predatory practices should be stopped. Taking a page out of Newham’s playbook would be a step in the right direction.
