Calling time on payday loans

No one can say Kerry Katona isn’t resilient. She works hard, gets into horrendous pickles but always bounces back and never moans about her troubles. But as she admits, she struggles with handling money. This week she filed for bankruptcy for the second time and was promptly dropped from her contract as the public face of Cash Lady – a payday loan company that advertises itself as a responsible lender that helps tide people over till payday. Until of course it decides to pull the plug, as it has with Kerry Katona. You couldn’t make it up. There could not be a clearer example of what happens when you put your financial future in someone else’s hands.

The interest rates charged by payday loans would be comical if the consequences of them weren’t so tragic. I do wonder what the bosses of these companies tell their children they do for a living. They talk about responsible lending and talk of “tiding people over” from one payday to the next. That is absolutely fine if the people borrowing are simply having one bad month and can therefore afford to spend £20 to borrow £100. But frankly, if you are in that position you have either exhausted every other way of raising cash or are very very bad at handling money.  Either way, perhaps the “responsible” thing is to step away and not pile yet more debt on to people who are already at the end of their credit tether.

So what happens? Someone already short of money takes out a loan for £100 promising to pay back £120 a month later. When – surprise, surprise – their financial situation hasn’t improved in four short weeks, they postpone repayment for another month. The borrower has to pay back £20 in interest just to keep the loan going for another month – but they still owe the lender the original £100 plus the original £20 interest. And so it goes on for up to three months. They call it a “rollover”, using the happy language of the National Lottery to take the sting out of the ever-growing debt.

Should we blame the loan companies for spotting an easy, perfectly legal, way to make money? Should we blame “society” for dangling unobtainable goodies in front of families without the means to pay for them? Should we blame the borrowers, for being suckered into debt down the path of good intentions and unrealistic expectations of “something coming up” in time to pay back the loan next month?

I do know that it’s not as simple as blaming either the loan companies or the people who borrow from them. The best way of shutting payday loan companies down is not to use them, leaving them to shrivel away through lack of use and public embarrassment. In the meantime, Kerry Katona has done us all a favour by showing how quickly these companies will leave you out in the cold if you fall on hard times.

She was picked to be the face of Cash Lady because, as Cash Lady’s parent company PDB UK told the Guardian in May, “Katona was chosen precisely because she has had money problems, as customers would be able to ‘relate to her’.” But when her money troubles turned to bankruptcy this week she was shown the door. According to Wednesday’s Independent, PDB UK said they were sorry to hear about Ms Katona’s current financial situation. “Clearly, as a business, we are committed to responsible lending, so it is with sadness that we will not be able to continue using Kerry as the face of Cash Lady.”

But she’ll have the last laugh, if the photos of her beaming on the red carpet the very next day as she went straight back at work at the Arqiva Commercial Radio Awards with her fellow Atomic Kittens are anything to go by. Maybe she will succeed where thousands of Citizens Advice Bureau workers, debt counsellors and newspaper articles have failed and show payday loan companies up for the ridiculous waste of money they are. Maybe if we laugh at them enough they’ll just disappear from our high streets, like Ratners.

Posted by Amanda Blinkhorn