Three out of 10 Spanish families regularly run out of money before the end of each month, according to a new survey by the OCU, Spain’s leading consumer rights organization. At the same time, around half of households have faced serious financial difficulties on at least one occasion and around 3.5 million of the country’s unemployed receive no social security payments.
To meet their short-term needs, growing numbers of cash-strapped Spaniards are turning to so-called payday lenders that charge extortionate interest rates on small loans. While most banks charge the equivalent of around 13% annually on loans, and up to 27% on credit cards, micro-loan companies, which offer borrowers a maximum of €600, can charge annual percentage rates (APR) of between 3,500% and 4,500%.
Micro-loan companies can charge annual percentage rates of between 3,500% and 4,500%
ADICAE, the national association of bank users, has also just released figures on the activities of payday lenders and aims to pass on its complaints to the government consumer bodies, along with the Ombudsman.
Consumer rights organizations accuse payday lenders of taking advantage of low-income families and people in difficult circumstances, citing companies such as Préstamo10, Twinero, sucredito.es, Qué bueno!, Ok Money, creditmovil.es, Ferratum and Vivus.es as among those charging the highest rates. For example: the APR on a €300 loan to be paid in 30 days was 1,269.7% at Vivus.es and 4,507% at Préstamo 10.
EL PAÍS contacted Préstamo10, Vivus and Twinero, but the companies declined to comment.
Alberto B. says he borrowed €200 from pay-day lender Vivus to pay a traffic fine. “I contacted them and the next day the money was in my bank account,” he says.
But when the month was up he was due to repay the loan. “I fell into their trap. I asked to pay the loan back in €40 installments, but they refused. They kept piling up the interest and said they would put me on a credit blacklist. I ended up paying them more than €1,000. It was horrible. Nobody should do this. My conclusion is that you shouldn’t spend money you don’t have,” he says.
Several other similar cases are highlighted in a new documentary called El Descrédito (The discredit), financed by ADICAE. One case is that of a young man whose parents ended up paying €1,500 back on a €100 loan.
The problem is that most people who are desperately short of money do not bother to read the small print on the websites of payday lenders, says ADICAE.
Twinero’s page warns: “Delayed payment: the penalization for late payment will be 1% daily on the total amount of unpaid debt, with a maximum limit of 100% on the principal and without prejudice to the other consequences that could derive from failure to provide details about solvency.”
Another borrower ended up losing her home after taking out a loan to buy a car.
In Spain, payday lenders can operate without any supervision from the Bank of Spain, but must be registered with the Health Ministry’s consumer sub-directorate. But it falls to regional governments to chase up complaints and punish abusive practices.
“There are no checks carried out and the sanctions applied to these companies are not heavy enough,” says a spokesman for consumer rights organization FACUA, pointing out that the Supreme Court recently passed legislation supposedly preventing lenders from charging an APR of over 24.6%.
Spain’s complex laws covering the sector make it hard for consumers to complain about abuses
Larger non-bank lenders such as Cetelem or Cofidis are in a different league, offering loans of between 17.75% and 24.51% APR. “We are regulated by the Bank of Spain, our advertising is monitored, we reject eight out of 10 requests, and we offer long-term loans,” says Carolina de la Calzada, director of marketing at Cofidis. “We are a very different type of company to these websites, which in reality are only offering ways to delay payment. Our competitors are the credit card companies and the big banks.”
Spain’s complex laws covering the sector make it hard for consumers to complain about abuses, says ADICAE, which is calling for out-of-court settlement systems in such cases.
“In a country like Spain, where complaints to the Bank of Spain and the National Stock Exchange Commission are not binding, settling out of court can be a good way to shorten trials of abuses in the sector,” says ADICAE.