Are lending companies doing good in the world or evil? – this is a question I often ask myself.
The argument for good is that they make credit available to people that don’t have money – this allows them to get themselves out of trouble, say, when their car breaks down – allowing them to get to work and continue earning money for their family. If humans only ever used credit in logical ways and planned how they were going to repay and if they could afford the repayments, then I find it almost impossible to label credit providers as evil.
HOWEVER, and it’s a big however, we don’t live in a world where human’s think and act in a logical manor. As soon as you add human emotions to the mix, any credit product, however cheap can start to look unethical. We know for a fact that customers aren’t using their credit wisely – for example if I look at my visitors that are looking at financial help blog posts, I see that most of them are browsing the latest iphone – a £1000 phone! – logically the first they should do if they are in financial trouble is to sell the phone, for say £700, buy a £200 phone and put the £500 towards paying off their debt.
This is where responsible lending regulations come in. The FCA recognise that we’re all humans and our emotions make us vulnerable when it comes to borrowing money. The FCA tells lenders that they must check that consumers can afford the repayments, however silly it may be to borrow it.