Phil Hall, special adviser to ifs University College, which provides GCSE, AS and A level equivalent qualifications in personal finance to almost 30,000 teenagers every year, criticised the plans.
According to Mr Miliband, Labour would raise about £20m a year from these lenders, which sometimes charge more than a 5000 per cent annual repayment rate (APR), either from a 1 per cent levy on their balance sheet or a 10 per cent profits tax.
The revenue would be used to double the £13m a year currently provided by the government to expand credit unions, which lend money with a maximum interest rate of 26 per cent a year.
However, Mr Hall said: “Credit unions do not offer a real alternative to payday lenders because most credit unions require borrowers to have saved with them for several months before they can borrow any money.”
According to Mr Hall, payday lenders will often lend on the same day that an application is made, as soon as satisfactory credit checks have been completed, which makes them more attractive to consumers with immediate short-term financial needs.
Mr Hall said: “The fixation with huge APR rates for payday lenders is misleading because APRs are annual. Payday loans are not and often it is cheaper to borrow from a payday lender than to dip into an unauthorised overdraft or to take out a lengthy bank loan.”
Adviser View:
Tony Slimmings, director of WR Financial Management in Thornaby, said: “There has been a lot of criticism that the banks in some way are to blame for the growing popularity of these payday lenders, in that they should be lending to people. That is erroneous, as a bank’s business is not short-term lending of this type.
“To imply that customers are using these payday lenders in the wrong way misses the point as the people that often go to them are in the most desperate circumstance, and unable to repay these loans as and when they should.
“Instead, the government should be encouraging the growth of credit unions allied to organisations such as the Citizen’s Advice Bureau, which can offer a whole solution to vulnerable people’s debt problems.”
