Payday lenders bite back: 'Don't call us loan sharks'

Caroline Walton outside a branch of the Money Shop The Money Shop's Caroline Walton is fed up with the company's poor reputation

Everyone it seems has a shocking story about payday loans. Even my taxi driver.

"My wife's uncle borrowed £500 to repair his car, and now he owes them £16,000. It has totally ruined him," he says.

Fed up with such stories, and pilloried by MPs, local authorities, newspapers and even the Archbishop of Canterbury, the payday loans industry is now fighting to improve its reputation.

"Our detractors are miscommunicating by calling this industry legal loan sharking. Because it is blurring the edges for people as to what a loan shark actually is," says Caroline Walton, corporate affairs director of Dollar Financial UK, which owns The Money Shop.

So for the first time in its 13-year history, the biggest payday lender on the High Street agreed to give the BBC access to one of its branches.

Until now The Money Shop has refused to allow any journalist to meet its customers, or watch the lending process.

How much does a £100 payday loan cost?

  • Wonga £37.15
  • Money Shop (in store) £29.99
  • Money Shop (online) £27.99
  • QuickQuid £23.49
  • London Mutual Credit Union £11 + £2 membership

(Based on a one-month loan period)

Which is why my taxi driver is taking me to Bulwell, a suburb of Nottingham where The Money Shop has two of its 575 branches.

The shop - plate glass and bright yellow - faces onto the High Street for all the world like it is a shiny new branch of a bank.

But are the loans on offer here, with typical APRs of 3,000%, really the evil they have been made out to be?

'Banks don't help'

"Can I take out one of them payday loans?" refuse collector Chris Riley asks at the counter.

Twenty minutes later, he walks out of the store with £150 cash in a brown envelope.

"Just to help me out till I get paid at the end of the month," he explains.

On his salary of £13,500 a year, he says he will pay it back "no problem".

Behind him is Damien McGlinchey, a 27-year-old care worker, who has popped in to pay off his loan of £280, which was for a rather more frivolous purpose.

"I was struggling to pay for my birthday party," he says. "It was quite a big do."

But what unites all the customers is dissatisfaction with banks.

"The banks don't help," maintains Chris Riley.

"They wouldn't give us an overdraft, even though I'm on a salary."

The real sharks?

Start Quote

We provide our customers with a service. And yes, I sleep well at night”

End Quote Caroline Walton Dollar Financial UK

Customers to the Money Shop pay £29.99 to borrow £100 for a month.

But Caroline Walton insists her company's charges are justified.

"Someone comes in to the store, you've never seen them before, you've got to invest in all the security, you've got to train your staff, and yet £29 is seen as profiteering," she told the BBC.

She also warns that if customers cannot get a loan through a payday lender, they are likely to turn to unregulated lenders.

"The consequences are not just financial. They are physical consequences - intimidation, and threatening you through your family," she says.

She says such people, who "operate under the radar", are the real sharks.

customer in Money Shop Customers at The Money Shop can get a payday loan in 20 minutes
Credit unions alternative

The Money Shop's fees are lower than their rival Wonga, which charges £37.15 to borrow £100 for a month, but much more than a typical credit union.

Credit unions - not-for-profit organisations, which belong to their members - have been backed by the Archbishop of Canterbury, Justin Welby, who wants them to "compete" payday lenders out of business.

Credit unions

  • 400 in the UK
  • Lend £620m a year
  • Not-for-profit
  • Owned by members
  • Limited availability
  • Don't all offer payday loans
  • Regulated by FCA/PRA

A few of them, such as the London Mutual Credit Union (LMCU), provide payday loans.

For such a loan, LMCU charges £11, plus a £2 membership fee. Borrowers have to live in the London boroughs of Southwark, Lambeth, Westminster or Camden.

Jane Symonds, from the Money Advice Service, says that if people have to borrow money, a credit union is a good place to start.

"There's a cap on the amount of interest they can charge on their loans of 2% a month or 26.8% a year APR," she says.

"However, some credit unions insist you save with them first before they'll let you take out a loan."

Responsible lending

Payday lenders

  • 200+ in the UK
  • Lend £1.8bn a year
  • Profit-motivated
  • Owned by shareholders
  • Widely available
  • Loans in 20 minutes
  • Regulated by OFT (until 2014)

Many customers have little real choice of course but to turn to a payday lender. The banks shy away from payday loans, and few people have access to such borrowing through credit unions.

Yet by going to a regulated payday lender which is a member of the Consumer Finance Association (CFA), they are at least guaranteed some safeguards, which go beyond the government's customer charter.

Under the CFA's lending code, which came in last year, borrowers are promised:

  • proper affordability assessments, to make sure they can repay the loan
  • a maximum of three loan extensions, or roll-overs, which can push them into financial difficulty
  • interest charges will be frozen after 60 days of non-payment
  • special treatment if they have mental health issues, or are members of the armed forces

In other words the taxi driver's anecdote, of a debt rising from £500 to £16,000, is more likely to be urban myth than true story, especially if the lender concerned was a member of the CFA.

Nineteen payday lenders who did not adhere to this code, have already dropped out of the business, after the Office of Fair Trading (OFT) wrote to the 50 biggest operators in the UK.

A further six lenders have either withdrawn voluntarily, or had their licences revoked by the OFT.


But are payday lenders giving the consumer a reasonable deal, or are they making good profits from the low-paid?

A glance at the profits of Dollar Financial's US parent company, DFC global, reveals that although the company operates in 10 countries around the world, half its profits come from the UK.

Trading as Instant Loans ltd, Dollar Financial UK reported profits of £34.6m to Companies House last year.

Only a portion of that would have come from the payday loans business, as the company also owns a string of pawn brokers, some of which operate within the Money Shop brand as well.

Earlier this year, the company also said profits in the UK would be squeezed, as a result of the OFT investigations.

That has still left it with healthy profits, but less than half those of rival Wonga, which recently reported annual profits of £84.5m.

But in any case, Caroline Walton has no moral qualms about how her company makes money.

"We provide our customers with a service," she says.

"And yes, I sleep well at night."

More on This Story

The BBC is not responsible for the content of external Internet sites

More Business stories


BBC Business Live

    Zalando website

    The hoopla surrounding the Alibaba share sale may be drowning out another internet firm raising money. Late on Wednesday Zalando, Europe's biggest online fashion retailer, priced its shares in a range of 18 to 22.5 euros . The firm, based in Berlin, aims to raise up to 633m euros (£500m). Zalando was formed in 2008 when it began selling shoes.

    PLUS-SIZE FASHION 09:01: Radio 5 live
    Evans show, London Fashion week

    "Consumers are getting bigger," says Maria Malone expert in fashion buying and merchandising at Manchester Metropolitan University. More retailers are offering bigger clothing and Evans had a plus-size fashion show at London fashion week (pictured). On Radio 5 live Ms Malone quotes research from Mintel, which found in 2008 the market was worth £3.2bn and by 2015 it forecasts that it will be worth £6bn.


    French Connection shares have plunged 13%. Earlier the retailer said it remains "cautious" about the second half of the year and is "dependent" on the Christmas trading period. On the plus side, the company cut its half-year loss to £3.9m, from £6.1m in the previous year.

    MARKET UPDATE 08:26:

    European markets have opened slightly higher, following gains for US shares and Asian markets overnight. Investors have been encouraged by comments from the chair of the US Federal Reserve, Janet Yellen, who said US interest rates would remain low for a while longer. The FTSE 100 is up a touch at 6781.

    Toshiba building, Tokyo

    Japan's Toshiba is moving away from selling computers to consumers to focus on business customers. The reorganisation of its business will result in 900 job losses. The revamp will result in a cut to operating profit of 45bn yen (£250m). It says the consumer market for computers is "volatile and over-dependent on sales' scale and volume".

    GOOGLE ROW 08:05: BBC Radio 4
    The Google logo

    Is Rupert Murdoch's accusation that Google is a "platform for piracy" timed to coincide with an European investigation into the search engine giant? Rory Cellan-Jones tells the Today programme big media owners such as Mr Murdoch may "sense an opportunity" to cause mischief after the European Commission, which had concluded its investigation into Google, reopened it under pressure from Germany and France.

    BRIT IN BRUSSELS 07:55: BBC Radio 4

    "There is a real sense of scepticism," over the appointment of Lord Hill as the European Commissioner in charge of Financial Services across the European Union, BBC European correspondent Chris Morris tells the Today programme. Green MEP Philippe Lamberts tells the BBC: "When I first heard about this I thought it was a joke". He thinks Lord Hill will face a difficult confirmation hearing on 1 October. Lord Hill needs to prove he is "not just the personal envoy of David Cameron", another MEP tells the BBC.

    PHONES 4U RESCUE 07:44: BBC Radio 4

    Bondholders of Phones 4U are offering to take losses on their debt, in return for saving the firm. To do that they will have to negotiate with the suppliers of network services like EE and Vodafone. This "calls the bluff of the networks" says BBC Business Editor Kamal Ahmed. It will test whether the networks really want to sell through independent retailers like Phones 4U, Kamal says.


    Easyjet is raising its dividend from a third of profit to 40% of profit for its financial year, which runs to the end of September this year. It has also confirmed an option to buy 27 of the Airbus A320 aircraft. It expects to take delivery of the jets between 2015 and 2018.

    Via Twitter Adam Parsons Business Correspondent

    tweets: "French Connection shares were 335p a decade ago. Now 70p"

    A French Connection store front

    French Connection has reported a half year pre-tax loss of £3.9m, compared with a pre-tax loss of £6.1m for the same period a year earlier. Revenue for the period was £84m, down from £89m a year earlier. The company says it is remains "cautious" about the second half of the year and reminds investors it is "dependent" on the Christmas trading period.

    ALIBABA SHARE SALE 07:09: BBC Radio 4

    Alibaba prices its shares after the close of trading in the US later today. Steven Hartley practice leader at Ovum Telecoms tells the Today programme the tech firm has about 80% of the e-commerce retail market in China. But he adds "only about half of the Chinese population has access to the internet" so the potential of a company with this kind of hold on the Chinese market is huge and that's why it is attracting so much investor attention.

    'HAIRY HIPSTERS' 06:58:
    Hipster olympics Berlin

    Wake Up to Money speaks to some "hairy hipsters" in London's trendy Shoreditch. One claims to spend "as little as possible" on grooming. Martin Wood, from IRI says there has been a decline in the sales of razor blades. Those who do shave are doing it less frequently, perhaps because they work from home and the expense is an issue too, Mr Wood says.

    END OF QE 06:52: BBC Radio 4

    Andrew Wilson of Goldman Sachs Asset Management tells the Today programme Wednesdays US Federal Reserve announcement on interest rates was "largely as expected". It reiterated that it will raise interest rates once a "considerable time" has passed after its stimulus programme ends in October. "Essentially it looks like 1.5% interest rates by the end of next year," he says.

    ALIBABA SHARE SALE 06:30: Radio 5 live

    "You are getting a taste of the future," says Gordon Barber, from the centre for digital business at the University of Salford on Wake Up to Money. He browses the Alibaba website in his spare time. He says it can give an insight into where high street technology products will be in one or two years time.

    ALIBABA SHARE SALE 06:16: Radio 5 live

    "Investors are punch drunk with new issues," says Justin Urquhart Stewart, co-founder and senior partner of Seven Investment Management on Wake Up to Money. He says that recent shares sales have been "overpriced" and "oversold". He adds investors want to wait until shares settle down before investing in firms like Alibaba.

    ALIBABA SHARE SALE 06:10: Radio 5 live
    Alibaba HQ

    The BBC's Ali Moore in Singapore explains the extent of Alibaba on Wake Up to Money. It owns China's biggest online shopping site. It has an online payment system. It owns 35% of a department store chain and it wants a banking licence. But she says the firm does not face massive competition in its home market, so it's not clear how it will do outside China. Its shares are expected to be priced after the US markets close on Thursday.

    PHONES 4U RESCUE 06:02: Radio 5 live
    Phones 4U store

    Bondholders "were extremely angry over what happened," says Justin Urquhart Stewart, co-founder of Seven Investment Management Wake Up to Money. He's referring to the collapse of Phones 4U. Its private equity owners took more than £200m out of the firm by loading it with debt. Now those holders of debt are offering to take a loss to keep the business going.

    06:01: Matthew West Business Reporter

    Morning folks. As always feel free to get in touch either on email or on twitter @bbcbusiness.

    06:00: Ben Morris Business Reporter

    A group of Phones 4U creditors are offering a deal to help revive the firm, and find out why you should care about Alibaba. Stay with the Business live page.



From BBC Capital


  • Cinema audienceClick Watch

    Brighter 3D films - the new laser-based system promising to deliver crisper, clearer movies

BBC © 2014 The BBC is not responsible for the content of external sites. Read more.

This page is best viewed in an up-to-date web browser with style sheets (CSS) enabled. While you will be able to view the content of this page in your current browser, you will not be able to get the full visual experience. Please consider upgrading your browser software or enabling style sheets (CSS) if you are able to do so.