New Budget Proposes Way to Overcome Payday Debt
It is time for the new budget to be announced, which is always an interesting time in British politics. This time around the Chancellor of the Exchequer, Phillip Hammond, has proposed a scheme which is designed to help people overcome debt. This new scheme will offer 0% interest loans to 3 million people in order to help with get come out of the state of debt, including debt acquired from payday loans.
Campaigners have since welcome the idea of the government exploring this option, which is set to be unveiled by Phillip Hammond on the 29th of October 2018. However, many campaigners have called on the government to go even further to protect low-income households from exploitative lending practices.
One prominent campaigner against the results of payday lending is the Labour MP, Stella Creasy. She is working to urge the ministers to go further by introducing a cap on all forms of borrowing, which she claims will help to prevent people from finding themselves in financial trouble in the first place.
Alongside this scheme, Phillip Hammond and the government are set to open a consolation with debt charities as well as the banking industry about providing these interest-free loans.
The Treasury does believe that this scheme could really tackle the issue of debt left by payday lending and other high cost lending methods. It is thought that by helping low-income families with a more affordable alternative, it would additionally take away the pressure on them to borrow from any kind of illegal loan shark. In essence, the scheme hopes to provide “breathing space” for people to get out of debt.
What sparked this scheme?
Wonga, a leading payday lender and pretty much the poster child for the industry, has recently gone into administration. The lender has now stopped taking on new loan applications as they collapse as a company.
Wonga were famous for starting the trend of quick & instant loans. They typically offered payday loans in a matter of hours from the point of application approval, however, they were extremely high cost and in many cases caused people to fall into even worse debt.
In 2014, the Financial Conduct Authority took over the lending industry and introduced a set of rules which were a lot stricter in nature than they had been before. This ultimately meant that Wonga could not carry on conducting the same way they had been and subsequently began to lose out on millions of pounds’ worth of profit. Eventually, they had to call it a day and file for bankruptcy – many people are happy about this, but others remain devastated by the effects of high-cost credit.
This was also the case for a lot of other quick lending companies and people were still having to seek money elsewhere or take out a second loan just to pay off the initial loan. This is being seen as an attack on lower-income families and therefore, something had to change according to the government and debt charities.