Are Payday Loan Advertisements Morally Acceptable?

- by Elizabeth Redfern

History of British Newspapers – Chapter 26

In this article, we take a look at payday loan advertisements. Although newspapers nowadays do not carry them, they are still advertised elsewhere. Are they morally acceptable? Are they manipulating people into a trap, or are they merely presenting consumers with a reasonable option? Read the discussion about payday loan advertisements in full, as a number of different questions are raised.

We will also take a peek at how newspapers refer to payday lenders in stories featuring them. Are they purely objective, or do they twist the stories? Discover the truth, with Cashfloat.

Are payday loan advertisements morally acceptable? Cashfloat

Although there is no presence of payday loan advertisements in newspapers these days (print and digital), there are ads from companies who claim to ‘buy houses with cash, fast!’ These adverts are not offering a loan, but they are still trying to grab the attention of individuals who are in need of money.

The Payday Loan Industry

Payday loans first started coming into force in 2006. The market grew significantly over the coming years and was rife in 2009/2010 when the nation was feeling the effects of the recession. The country was plunged into panic, and the concept of the payday loan was born shortly after.

Discover history of credit and payday loan companies with Cashfloat - Are payday loan advertisements morally acceptable?

Wonga is one of the most well-known payday lenders. They received heavy criticism over their behaviour in glamorising lending and increasing their rate to 5,853%. The FCA eventually ordered them to pay out compensation in 2014.

Google recently put a stop to payday loan advertisements online. Accounts of this decision were featured in many of the leading newspapers, as well as being headline news on television.

But does this mean that payday loans are intrinsically bad? Or are they a useful financial tool, when used properly? But then, do online lenders encourage responsible use, or do they take advantage of struggling people? Let’s take a look at the story that payday loan advertisements reveal.

Some Thoughts on Payday Loan Advertisements

Payday Loans in the News

With many customer complaints, the behaviour of payday loan companies out there was called into question. The Mail Online published an article in 2014 exclaiming that lenders were being “attacked as irresponsible”. However, could the use of language in the word ‘attacked’ be implying they have been wrongfully accused of misleading people? If they had used ‘branded’, this would have given a different connotation.

Searching The Guardian’s site gave 404 results for payday loan articles. This illustrates that it is something that has faced a lot of coverage over the years. Hard hitting news is always tough to read, for example, people taking their lives as a result of getting themselves into financial difficulty. In some instances, the payday loan industry has been reportedly at the heart of this.

A Booming Industry?

One of The Guardian articles states that ‘2012-13 was the peak period for payday loans when people took out almost £4 billion worth of payday loans.’ Recent activity with a clamp down on the payday lenders has resulted in them writing off debts due to unfair practices and behaviour with customers.

It was reported that “in 2009, 1.2 million people took out 4.1 million loans, with total lending amounting to £1.2 billion.” This not surprising due to the struggling economy. Present day worries relating to the economy are once again at the forefront of a lot of people’s minds in view of the United Kingdom’s ‘Brexit’ vote to leave the European Union.

Cashfloat describe payday loan advertisements - statistics

A later article on The Guardian would suggest that people are still struggling as they move away from payday loans to other forms of borrowing.

In an article that The Mirror featured online under the Pay Day loan heading, it states that contactless spending hits a record high as a third of Brits say they can’t pay their mortgage. Is the nation, therefore, obsessed with the way in which technology makes money easy to spend and acquire?

Unarranged Overdraft or Payday Loans?

Interestingly, there is a further example of this in a recent article in The Mirror online, and it echoes that mentioned by The Guardian regarding other methods of borrowing. They reported that:

Payday loan advertisements - better that overdraft, Casfhloat

This information makes a case for people to use payday lenders for small loans rather than banks because banks are charging four times as much as them. Here, we’re talking about smaller loans, the market in which the payday loan companies thrive. Perhaps it is for this reason that they can provide a cheaper rate than banks for these smaller sums.

They also claimed that, in 2014, £1.2 billion of banks’ revenues came from unarranged overdrafts. The reasons for going into overdraft could be because of unawareness or avoidance of admitting what financial situation people are in. However, it could also be relative, based on the individual’s circumstances. You can read more about this topic in our article about unarranged overdraft. The article also states that:

“looking at unarranged overdraft charges, the (Which?) consumer group’s research found that consumers needing as little as £100 could be charged over 12 times more by major high street banks than the amount the Financial Conduct Authority (FCA) allows payday lenders to charge, when borrowing over the same period.”

(Source: Which? June 2016)

To do the right thing, the banks do urge people to contact them to find out what option is available for them. However, is the newspaper favouring payday lenders over banks? Or are the banks seizing the opportunity left open to them in relation to the small loan market?

It’s all in the wording

But, it seems, it is not just members of the public who can be targeted by banks or lending companies during troubled times. The Mirror printed an article which related to banks that were targeting businesses. The article was about the: “RBS Dash for Cash Outrage.” It revealed that “staff were offered bonus boosts to find struggling businesses that could be squeezed…” Relating to these actions, which are as a result of the lasting economical post-recession struggle, RBS had said:

“GRG’s role was to protect the bank’s position, where possible by working with distressed businesses to return them to financial health.”

This explanation puts an entirely different spin on the story, and it could all be down to the wording used in this article. For example, by using the term ‘squeezed’ it implies the physical notion of squeezing someone or something until there is nothing left. Squeezing a lemon is a good analogy. It would suggest that the banks were seeking out struggling businesses for their own benefit. However, the quote from the RBS spokesperson that followed suggests a different motivation: ‘working with’ the banks to ‘return’ them to ‘health.’

In comparison with the paydayloan scandals, were the payday loan companies working with distressed individuals to return them to financial health? Or were they taking advantage of their financial position by imposing stringent interest rates, which would ultimately put the customer further into debt, and make the company more profit? It is a subjective view, from whichever side of the fence you sit.

About The Author
Elizabeth Redfern
Elizabeth Redfern is a born and bred Londoner who loves the city life. She is a proud chocoholic who enjoys reading, jogging and eating - especially chocolate! Elizabeth attained a first class degree in Mathematics but chose to make a career out of her real passion, writing. She has published many poems and short stories, but decided to join the Cashfloat educational channel writing team because she is passionate about helping people take care of their finances leaving them free to enjoy the finer points of life - most notably (in her opinion), chocolate!
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