The Financial Conduct Authority has established a limit in the amount of cash payday lenders like Wonga may charge for the loan. It is this adequate to avoid individuals from spiralling into financial obligation?
The theory is straightforward.
someone borrows a hundred or so pounds from a pay day loans business to tide them over until they receive their next pay cheque. Then they repay the income they will have lent, in addition to the interest, on time. For people with dismal credit documents not able to borrow more cheaply from banking institutions, the money will help spend their household bills.
However in modern times, the payday advances industry happens to be criticised for recharging exorbitant amounts to those struggling to pay off loans on time. Interest can quickly swamp how big the initial loan, making borrowers sinking into never-ending debt. In a few nightmare instances, borrowers have already been chased by bailiffs for a lot of money, having lent just a couple hundred.
One firm, Wonga, happens to be branded by MPs, campaigners and also the Archbishop of Canterbury as unethical and immoral.