Pay day lenders exist because of flawed credit reporting and flawed lending criteria.

The Australian media loves a good story where the public can criticise companies.  It's the usual story, someone does something that gets them into trouble because they don't read the fine print.  Then before you know it they're blaming the company for their issues when it may not actually be the company's fault.

ABC's Four Corners ran a story tonight on pay day lenders.  Pay day lenders are exactly as the name suggests.  Companies lend to people who then pay back the loan on pay day.  The money is automatically taken out of your account by direct debit.  They have been criticised for charging excessive interest rates.  The interest rates are disclosed up front and people either agree to the terms and conditions or they don't.  If they do the money is transferred to your bank account within a couple of hours.

Pay day lenders are used by people of all types.  They are generally a lender of last resort.  The people shown on the Four Corners report were unemployed, mentally ill, druggies or simply didn't have enough money to live.  They are not the only people who use pay day lenders.  There are people out there who simply have poor credit scores from several years ago and instead of the finance companies or banks looking at current spending habits they look at how you used to spend money and what your income used to be.  This isn't how things should be done.  The banks used to lend to people freely before 2008 and then lending criteria got tougher so now the banks look at numbers from up to five years ago.  They don't look at your current situation.

Pay day lenders are not the predators that people think they are.  The fees and costs are disclosed up front before you digitally sign the agreement and nobody forces you to sign that agreement.  I agree with one part of the ABC's report.  If you're using pay day lenders for things like food and power then you have a problem, but in some circumstances that isn't the case at all.  There are people who use them for things like bond, car repairs etc.  That isn't a bad thing and as long as one pays back the loan there are no problems.

Pay day lenders exist primarily because of our flawed credit reporting system.  At this stage the system is set up to only report negative activity, so if you don't pay a bill that's reported, but if you are diligent that isn't reported.  If we had positive reporting people would have more of a chance to get their credit scores up and would be able to borrow from banks or other finance companies over a longer period of time. 

Why do we live in a society that only focuses on people's negative behaviour and actions rather than looking at the positive?  It seems counter productive.

The pay day lending industry wouldn't exist if banks the like looked at positive credit reporting and people's current financial position.  Instead however they look at a number which could be up to five years old, and that's just madness.  It also wouldn't exist if credit history only remained for three years.  A credit score doesn't take into account the economy or your previous employment situation compared to where you are now.  How someone paid their bills five years ago, even three years ago is not necessarily how you pay your bills today.  It's time to stop looking at outdated and irrelevant information.