Payday lenders: as the world catches up...

The sudden flurry of activity on the question of payday lenders is, I suspect, long overdue. The fact that borrowers can borrow from a range of such lenders with minimal, if any, cross referencing, means that such individuals can get into trouble very quickly.

Indeed, Ros raised concerns about payday loans as long ago as June 2010, amidst a wave of adverts for such services. I acknowledge that APRs are not a very effective tool for judging the impact of such loans, but the interest rates are significant. And the problem is that the people most likely to get into difficulties are those least likely to understand the implications of their actions.

You see, such loans are really only useful to those who encounter an unexpected one-off cashflow issue, and are not a solution for those consistently limping from pay cheque to pay cheque. If you're not taking, or not capable of taking, a medium or long term view of your finances, your vulnerability is obvious.

This creates a problem. If your aim is to protect the most vulnerable, the temptation is to ban such lending, or at least to restrict it significantly. If, on the other hand, you want people to take responsibility for their actions, you might leave things as they are, with a view that choice and freedom are good things.

So, we'll see how the lenders respond to the instruction from the Office of Fair Trading to get their act together in just twelve weeks. They'll certainly respond, business is just too lucrative, but watch out for the smoke and mirrors...