[ Responsible Lending]

by

ACKNOWLEDGEMENT

I would take this opportunity to thank my research supervisor, family and friends for their support and guidance without which this research would not have been possible.

DECLARATION

I, [type your full first names and surname here], declare that the contents of this dissertation/thesis represent my own unaided work, and that the dissertation/thesis has not previously been submitted for academic examination towards any qualification. Furthermore, it represents my own opinions and not necessarily those of the University.

Signed __________________ Date _________________

ABSTRACT

In 2007, Britians paid an estimated £8 billion in financial charges to borrow £50 billion from payday lenders.1 In a typical payday loan transaction, a borrower receives cash from the payday lender in exchange for an authorization to draw the cash advance plus a fixed fee of £15 to £17 for every £100 of loan from the borrower's bank account on the next paycheck date. Annualizing this fee reveals that payday loans are indeed expensive, with implied APRs (annual percentage rates) usually well over 400%. Industry insiders contend that transaction costs are high due to the short-term, high-risk nature of bridge loans. Consumer advocates argue that payday lenders prey on those that are so financially illiterate or unsophisticated that they are willing to take up such expensive loans.

TABLE OF CONTENTS

ACKNOWLEDGEMENT2

DECLARATION3

ABSTRACT4

CHAPTER 1: INTRODUCTION6

Research Question7

Research Objectives7

CHAPTER 2: LITERATURE REVIEW9

Payday Loans9

History of Payday loans13

More Detailed Information13

Corporate Social Responsibility15

History16

Arguments For And Against Corporate Social Responsibility19

The Stakeholder Concept21

The Overdraft Credit Market And Its Players23

CHAPTER 3: METHODOLOGY27

Treatments28

CHAPTER 4: DISCUSSION AND ANALYSIS32

Bankruptcy32

Complaints against Lenders and Debt Collectors34

Overdrafts35

Robustness38

CHAPTER 5: CONCLUSION40

REFERENCES43

CHAPTER 1: INTRODUCTION

High-cost short term loans are often described as payday loans, although descriptors range from short term finance to cash advances to personal finance solutions. Unfortunately, although the term payday loan is well understood in the United States (where both the business model and the term were invented), in UK it is often used to refer to a range of other fringe credit products. These include pawn-broking, appliance and furniture rental and longer term high-cost loans of twelve or eighteen months.

Given the confusion surrounding the term payday loan, this report has chosen to use the term, high-cost short term loan. Typically, high-cost short term loans are small loans most commonly ranging from £150 to £350, advanced to individual consumers. They are predominantly used to meet basic, recurrent living expenses. The loan is designed to be paid bac k within a short period of time, generally 2 to 4 weeks, and carries a significant fee and/or interest charge, relative to the principal advanced. Such loans exist as a unique and particular product type within the broader fringe credit market Whilst there are typical characteristics amongst such loans, recognising the less typical yet still quite common usage of them, we adopt a definition that is slightly broader than the most common scenario.

Even when adjusted for inflation, income levels were higher than those reported in 2002, although they still confirm low-income earners as the core market for high-cost short term loans. This variance may be partly attributable to the differing ...