Idiot MP spotted

Creasy said: \”This isn\’t broken Britain, but broke Britain – and it is being bled dry by the legal loan shark industry and their interest rates of 1,700% or more. R3 highlight how in the next six months alone, a whopping 3.5 million Britons expect to take out a payday loan. Sixty-seven per cent say they are unable to get credit anywhere else.\”

The research showed that 32% of those who took out a payday loan had to get another one to pay it off.

Creasy said the government should legislate before Christmas. \”We know that capping would make a massive difference to those people. I don\’t see why the government doesn\’t get on and do it now.\”

Yes, how wonderful, let\’s abolish the only form of credit that, by your own numbers, 2.3 million people can get.

The whole thing is really terribly simple. Lending small amounts of money for short periods of time is expensive. Therefore borrowing small amounts of money for short periods of time is expensive.

And that\’s pretty much it.

I do wonder whether Stella Creasy is actually capable of farting and chewing gum at the same time.

This is fun as well:

The true cost of lending to short-term borrowers is less than 2% of the amount charged by Wonga, the most expensive and highest profile payday lender.

My Home Finance, a not-for-profit organisation set up by the government and the National Housing Federation in 2010, charges a representative APR of 69.9%, just 1.66% of the 4,214% APR charged by online lender Wonga.

Rilly?

My Home Finance loans are not subsidised, and a borrower would pay £7.09 a week for 52 weeks to repay £300, producing a total repayment of £383.68 over the year including interest of £68.68 and an administration charge of £15. The same borrower taking out £300 from Wonga for just 31 days would repay a total of £398.91.

See what they\’ve done there?

That £15 arrangement fee? It\’s charged just once per annum. But they\’ve compared it with the same arrangement fee (which might well be a different amount I agree) which is charged for a month\’s loan from Wonga and then annualised that month\’s fee.

This is known, to be delicate about it, as lying like fuck with numbers.

20 comments on “Idiot MP spotted

  1. Her argument is appealing until the brain is engaged. If companies could profitably make loans at half the interest rate, they would to get into a profitable business.
    She appears to have no understanding of the expenses involved in running a business one of which is dealing with delinquent customers. Even a customer who borrows and pays back exactly as arranged involves costs which are probably not massively dissimilar for a £100 loan as for a £10,000 loan.
    I am not in the money-lending business but don’t expect them to provide their services on a not-for-profit basis.

  2. Absolutely spot on. Getting hung up on APR figures shows how stupid arguer is, they should know these are not ANNUAL loans!

    “Oh, but if they can’t pay back they’re charged more.” They shouldn’t be borrowing beyond their means! Payback when it’s due and you’ll be fine!

    It’s like blaming McDonalds for the nations growing waistline, but MPs know campaigning against that wouldn’t win any votes 😉

  3. Oh I see, so it turns out that you can do it quite a bit cheaper if you don’t have to show a profit and are completely insulated from any losses you might make by the taxpayer ?

    Well, you could knock me down with a feather, so you could. Truly astonishing.

  4. Me again, sorry. I had this conversation just yesterday, as I was applying for a Wonga loan.

    Me – tap tap tap.
    Friend – Watcha doing?
    Me – Getting a Wonga.
    Friend – Eh?.
    Me – Getting a Wonga Loan.
    Friend – OMG NO, STOP, DON’T DO IT, THEIR INTEREST IS LIKE 3 MILLION PERCENT AND THEY WILL TAKE YOUR KIDNEYS, HOUSE AND CHILDREN IF YOU DON’T PAY UP.
    Me – Eh?.
    Friend – It’s true.
    Me – Seriously?. My exhaust just fell off and I need £175 to pay for a new one, TODAY. I get paid on Friday. Can you loan me £175 till Friday?.
    Friend – Er, No.
    Me – Will the bank lend me £175 till Friday?.
    Friend – Er, probably not.
    Me – So, Wonga it is.
    Friend – But if you don’t pay it back they will charge you millions of pounds in interest and if you still don’t pay they will steal your kidneys. I swear.
    Me – Any one that borrows money they can’t/won’t pay back deserves to be punished, it’s called theft.
    Friend – Oh.
    Me – Talking of horrific pay back fees, how much will your £80,000 mortgage cost you over 25 years, £160,00?. Rumour has it if you don’t pay it back they can come take your house.
    Friend – !
    Me – All done, £175, in my bank, in 15 minutes, for the princely sum of a tenner.
    Friend – !!!
    Me – By the way, how much did that bounced Direct Debit cost you last month, when you didn’t have the £17 to put in your account by 4pm?.
    Friend – £65.
    Me – Wow, you could have grabbed a £20 Wonga, paid £6.50 for the loan, had it in the bank in 15 mins and saved yourself £40.
    Friend – %$£”*@!!!

    Wonga (and the like) receive a helluva lot of bad press but I think they are brilliant. They have saved me time and again. I have a fixed income, and sometimes things crop up that have to be dealt with there and then, normally 3 days before payday. Also, something else that is never reported is that if you take a Wonga, but for some reason can’t pay it all back on the date you give, phone them and set up a repayment program, the minute you do they halt all interest. Try getting that kind of deal from your local Bank.

    Mummy x

  5. If she wants to save people from their follies, why doesn’t she advocate banning betting and lotteries? And ciggies and lager?

  6. Uhh, she probably does, dearieme. Let’s not be too hasty.

    I attempted to make a joke about Creasy before. Let’s say we have someone who borrows money at outrageous rates of interest, spends it on current consumption, and then refuses to pay it back. Innocent victim, or Bernie Madoff?

    (Yes I know Madoff only promised about 10% p.a.)

  7. Does she also complain about HMRC’s £100 fine for a late tax return? That’s way more than Wonga charge.

  8. “Does she also complain about HMRC’s £100 fine for a late tax return? “

    Well, no, of course not! Once that money is in the government’s clutches, it’s only used for good, clearly…

  9. Re Mummy’s 15 minute loan, it’s amazing how fast bank transactions are now.

    I’ve just shifted some money from my business account to my current account (with a different bank). By the time I’d logged out of the business account and logged into the current account, it was there.

    And until recently they said it needed 3 working days to do that.

  10. Here we go again, lots more real people are going to suffer as a result of the self-pleasuring of a progressive.

  11. Mummy should go to a pawnbroker instead – she’d get a loan secured on a piece of jewellery at 8% or 9% per month. AND if she can’t be bothered to walk that far some of them do payday loans over the internet at a multiple of the cost of secured loans but a fraction of wonga’s rates.
    For those who haven’t been watching – pawnbrokers were one of the biggest growth industry under New Labour – more than 1000% in twelve years.
    Payday loans have been around a lot longer than wonga.com and they do NOT need to be that expensive. wonga is just greedy.
    Ms Creasy is just trying to get a headline. The post shows that more than two-thirds of borrowers can and do pay them off at the first opportunity. Yes the APR is high but the actual interest paid on a loan that averages less than £300 for around 15 days is pretty small.

  12. Tim:

    Why on earth would you want someone who could fart while chewing gum? I’d prefer they couldn’t–especially if they chewed gum frequently anywhere in my vicinity.

    Sometimes, you can’t seem to think straight.

  13. Dr Creasy, as I understand it Tim, doesn’t want bans on credit for consumers, and for the uncreditworthy to be driven underground into the murky water of illegal loan sharks – she wants a cap on the total cost of credit, a credit union build linked to the post office network and for credit lenders to pay a levy to fund financial education services as well as a campaign warning consumers about the dangers of debt cycles (like how drink industries foot the bill for drinkaware campaigns).

    Around 860,000 people are served in this country by Credit Unions which is good but not enough.

    Short term costs of lending credit is expensive (even though fees should be reduced by online lenders) but you ought to be careful holding in such high esteem an industry that makes its profit from the “rolling over” of debts.

  14. Carl, maybe she does want all those things, so what ? Just another load of meddling in people’s personal affairs, I wouldn’t use the drinks industry as an example of how to do it, no one takes any notice of all the awareness campaigns and industry funding is just another indirect tax on the consumer. The Post Office credit union thing sounds OK but how do you get at your money if the local post office is closed or miles away ? On the subject of credit unions did I imagine it or did Polly Toynbee write an article years ago ( at least twenty ) dismissing them as irrelevant to the needs of the poor who wanted proper bank accounts ? Funny how progressive fads go.

  15. I went to a comparison website which showed me prices from seven different providers for a £100 short-term loan. All seven were charging £25 (Wonga give a £5.50 discount on that for first-time customers, and their quote is for 15 days compared with four weeks or a month from the other six.)

    Could it be that this is not a perfect example of the free market in operation?

    Tim adds: Could be. Although as you know, price movements in a prefectly competitive market will be the same as price movements in a perfectly oligopoluisitc one…..

  16. Thornavis;

    According to BIS 93% of the total UK population live within one mile of a post office. 20 million customers in 2010 and is one of the fastest growing providers of personal financial services in the UK.

    The Post Office network did, however, lose 8 million customers since 2000 so linking it to credit unions might zap a wee bit of energy into both. Not a dead duck I do declare.

    And if Polly Toynbee said it, it might just be wrong.

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