Steve Perry, 30, a low-paid admin worker from Wigan, wanted £250 for a long weekend with friends to the Lake District. His bank refused to extend his overdraft or authorise a loan. But a quick internet search turned up a pay-day loan company, which agreed to lend him £250 for two weeks, no questions asked.
Eighteen months on, he had 64 loans from 12 different firms worth £15,000, having borrowed and borrowed high-interest loans to avoid defaulting.
Nightmare debt stories like Steve's are expected to multiply as a perfect storm of falling wages, rising prices and lax regulation means a staggering 3.5million Britons are likely to take out a high-interest pay-day loan in the next six months, according to a survey published by R3, the Association of Business Recovery Professionals.
Many will borrow from American "legal loan sharks" circling in some of the most deprived parts of the UK, pushing loans that charge up to 5,000 per cent to millions of people turned away by high street banks. US pay-day loan firms such as Speedy Cash are increasingly entering Britain's relatively unregulated market. DFC Global, which owns The Money Shop and two internet lenders, is now the UK's biggest pay-day lender by market share. In 1992, it had one UK store, but by 2009 there were 273; last year it announced plans for a further 800.
Now, about half of all UK households regularly struggle to make money last until the next pay day. The watchdog, Consumer Focus, will today warn that changes made by major banks to basic bank accounts could push more consumers out of the banking system.
The pay-day loan industry, both home-grown and American, lent British consumers between £1.7bn and £1.9bn last year, compared to £500m in 2007. The industry has filled a growing gap left as banks say no to "high-risk" or low-income customers. On top of that, more than a million adults in the UK do not have a bank account. The industry is among few to have benefited in the financial crisis.
At least 35 US states and 15 European countries have introduced legal restrictions, and debt charities and consumer groups want stricter controls in Britain such as caps on fees and limits on repeated loans. But the lenders reject the claims and say consumers have far more complaints about banks and credit card companies. The Consumer Finance Association, which represents eight of the nine largest high-street payday lenders, said 94 per cent of customers were satisfied.