Lord Mitchell really is an ignorant tosser, isn\’t he?

Payday loan companies, such as QuickQuid, Wonga and Payday UK, have drawn heavy criticism for charging annual interest rates of up to 4,000 per cent a year. The firms have been accused to pushing vulnerable people into debt.

Lord Welby, the incoming Archbishop of Canterbury, recently said that some payday loans are \”usury\” and claimed that curbing them was a \”moral\” issue.

After a day of political manoeuvering, the Government said that it will give the new financial regulator – the Financial Conduct Authority (FCA) – the power to cap the interest rates charged by payday lenders.

Yes, yes, we all know those 4,000% rates are APRs, entirely unsuitable as a way of measuring the fees and interest on a 7 day loan.

But it will almost certainly be the APR they\’ll try to cap. Which will of course have its largest impact on the small and short end of the market. Where the fees of a £10 or something contribute to that exorbitant APR. So far so silly: and here\’s where M\’Lord is a tosser:

Lord Mitchell praised the minister\’s \”very welcome statement of intent\”.

He told peers: \”This issue is now where it should be – beyond party politics. The winners are those who have tirelessly campaigned for this change in the law and I must mention Stella Creasy MP, who has been relentless in her pursuit of justice.

\”The other winners are those who live in the hell-hole of grinding debt. Their lives will become just a little easier.

\”The losers are clearly the loan sharks and the payday lending companies.

No, the loan sharks will be the winners. They\’re the people who don\’t obey the law, recall? And they\’ve just had their competitors in that short and small end of the market banned by legislation. They\’re going to clean up, aren\’t they?

Welcome to knee breaking as a standard method of debt collection…..

7 comments on “Lord Mitchell really is an ignorant tosser, isn\’t he?

  1. Actually it’s more complex than that. Research shows that

    1) payday lenders lead to increased household financial distress
    2) when disasters hit, payday lender mitigate some household distress (good borrowers use it for the right purpose for emergency credit)
    3) Education or outright banning reduces the incidence of financial distress.

    Some people will indeed have worse outcomes, previously they borrowed from a payday lender that used a (legit) debt collection agency. Some of them will now fall prey to leg breakers. But some people will now no longer borrow (it was the temptation and opportunity of a payday lender that led them into financial distress) and will benefit.

  2. Once again a victory for the doogooders. Not one of whom would dream of using the service, has only the dreamiest idea how it works and think, as usual, they know better than the people who do use it.
    Consign to the same bin as: minimum alcohol price, smoking ban, hunting ban, rent controls, political oversight of the press etc., etc…fill in your favourite ‘it’s for your own good’ here.

  3. I think the hunting ban was probably for the animals own good.. that getting torn to shreds by a pack of dogs in the name of sport thing..

  4. Ken, if you are right (#1), won’t it be the people who shouldn’t have borrowed from a legit payday lender who will fall prey to the loan sharks, while the more responsible ones who used payday loans “for the right purpose” will avoid the sharks and not borrow?

    So both groups will be damaged (though for opposite reasons) by removing payday loans.

  5. Just today a payment that was supposed to go into my current account failed to clear, whilst payments went out leaving it roughly a fiver overdrawn. If I hadn’t rushed to put money in before the close of business today, they’d have charged me £21 for the privilege of borrowing a fiver for a single working day. It’s not the payday loans companies which have the high charges.

    If you do the nonsense extrapolation and calculate an APR from that, you end up with numbers larger than the cube of the number of protons in the universe, or that sort of ballpark.

  6. KJ I suppose the animals told you that they preferred to be gassed or buried alive rather than being giben a chance to live.

  7. Richard

    1 means that marginal people will end up hurt no matter what.
    2 means that good people are hurt – because they NEED that money – in the disaster studies, it is money to pay for car repairs, that allow people to keep working and thus avoid serious financial distress.
    3 may outweigh the factors above. Which is why the debate is difficult.

    Proof of 2) (and also of 1) is
    http://faculty.chicagobooth.edu/adair.morse/research/morsepayday_jfe2.pdf

    Proof of 1)
    http://papers.ssrn.com/sol3/papers.cfm?abstract_id=1266215

    Counter to 1)
    http://papers.ssrn.com/sol3/papers.cfm?abstract_id=1032621

    Proof of 3)
    http://papers.ssrn.com/sol3/papers.cfm?abstract_id=1335873

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