Simon Read: Payday lenders allowing multiple loans is leading to debt disaster

The number of people getting into financial trouble by taking out multiple payday loans has soared in the past three years, new figures published by a debt charity revealed this week.

Since 2009 four times as many people have turned to the Consumer Credit Counselling Service for help because they have 10 or more payday loans. Yes, that did say 10 or more.

Meanwhile the charity says it's experienced a three-fold increase in distraught debtors asking for help with the five or more payday loans they've taken out.

The fact that a person has one payday loan would send off alarm bells in me. As I've often written, there is a place for the deals. But I believe they are only suitable for those who know exactly how much the loans will cost them and also know that they can — and will — be able to afford to pay them back quickly.

Short-term credit becomes a danger when it's used by people who don't understand the costs and, especially, those who don't know how they are going to pay them back.

So if someone takes out more than one loan at a time, there's no doubt in my mind that they're heading for financial woe.

There are further statistics from the charity that make for interesting reading. It reports that more people than ever are getting into trouble after taking out high-cost credit — which costs up to 4,000 per cent APR from the likes of Wonga and other payday lenders. And the average amount struggling people owe is also climbing — it's up from £1,187 in 2009 to £1,458 this year.

The charity said the number of people seeking help with payday loan debts soared from 6,491 in 2009 to 17,414 in 2011. And with almost three months to go in 2012, 16,467 desperate debtors have this year sought help.

The payday loan industry has been thrust back in the spotlight this month partly because leading firm Wonga has splashed out millions on sponsoring Newcastle United.

The move has prompted plenty of debate about the expensive lenders and their place. Most Newcastle fans are simply happy that their club has been promised an inflow of much-needed cash.

Most debt experts worry that Wonga will use its new influence in the North-East to encourage more people to take out one of its expensive loans.

And that's one of the fundamental things that's wrong about the whole payday loan industry. The firms that offer them appear to use whatever methods they can to flog them.

In recent months we've seen ads targeting students and the un- employed with the message — and I'm paraphrasing only slightly — "take a loan and have a party!".

We've also seen ads on apps aimed at children as well as misleading claims about the cost of credit.

This type of advertising needs to be much more tightly controlled, I believe, to stop millions ending up in debt misery.

The problem at the moment is that the loans are sold to absolutely anyone. I did meet with representatives of some of the leading payday loan firms this week, who claimed that responsible payday lenders turn down nine out of 10 applicants.

But the problem is that there are countless irresponsible lenders out there. I was approached by one this week on Twitter (@simonnread) who asked for publicity.

I'm not going to name the lender (because they would see that as good publicity) but I will set out some of their deplorable practices.

For starters their website contained no mention of the cost of loans. This is a legal requirement which means, straight away, that the new lender is flouting the law.

Next, the website was full of good reasons to take out a loan, but no warnings about having to repay the debt. Third, and perhaps most irresponsibly, it stated that it doesn't matter if you've been turned down by other lenders, the website would still find you a loan.

Like the hundreds of other rogue payday lenders springing up, it flouts the law and flogs expensive loans to people who can't afford them, putting them in serious danger of ending in a disastrous debt cycle.

The fact that most payday lenders have no credit scoring and don't share data about their loans means it's easy for someone to borrow several times over.

I hope that the current Office of Fair Trading probe into the sector examines these issues. Rogue payday lenders must be closed down quickly while those that aim for respectability most be more tightly controlled.

PROMOTED VIDEO
Finacial products from our partners
Property search
Latest stories from i100
Have you tried new the Independent Digital Edition apps?
Independent Dating
and  

By clicking 'Search' you
are agreeing to our
Terms of Use.

ES Rentals

    iJobs Job Widget
    iJobs Money & Business

    Ashdown Group: Client Services Manager - Relationship Management - London

    £30000 - £32000 per annum + benefits : Ashdown Group: A highly successful, int...

    Recruitment Genius: Credit Controller / Customer Service

    £18000 - £20000 per annum: Recruitment Genius: This rapidly expanding business...

    Guru Careers: In-House / Internal Recruiter

    £25 - 28k + Bonus: Guru Careers: An In-house / Internal Recruiter is needed to...

    Recruitment Genius: Tax Assistant

    Negotiable: Recruitment Genius: A Tax Assistant is required to join a leading ...

    Day In a Page

    Syria crisis: Celebrities call on David Cameron to take more refugees as one young mother tells of torture by Assad regime

    Celebrities call on David Cameron to take more Syrian refugees

    One young mother tells of torture by Assad regime
    The enemy within: People who hear voices in their heads are being encouraged to talk back – with promising results

    The enemy within

    People who hear voices in their heads are being encouraged to talk back
    'In Auschwitz you got used to anything'

    'In Auschwitz you got used to anything'

    Survivors of the Nazi concentration camp remember its horror, 70 years on
    Autumn/winter menswear 2015: The uniforms that make up modern life come to the fore

    Autumn/winter menswear 2015

    The uniforms that make up modern life come to the fore
    'I'm gay, and plan to fight military homophobia'

    'I'm gay, and plan to fight military homophobia'

    Army general planning to come out
    Iraq invasion 2003: The bloody warnings six wise men gave to Tony Blair as he prepared to launch poorly planned campaign

    What the six wise men told Tony Blair

    Months before the invasion of Iraq in 2003, experts sought to warn the PM about his plans. Here, four of them recall that day
    25 years of The Independent on Sunday: The stories, the writers and the changes over the last quarter of a century

    25 years of The Independent on Sunday

    The stories, the writers and the changes over the last quarter of a century
    Homeless Veterans appeal: 'Really caring is a dangerous emotion in this kind of work'

    Homeless Veterans appeal

    As head of The Soldiers' Charity, Martin Rutledge has to temper compassion with realism. He tells Chris Green how his Army career prepared him
    Wu-Tang Clan and The Sexual Objects offer fans a chance to own the only copies of their latest albums

    Smash hit go under the hammer

    It's nice to pick up a new record once in a while, but the purchasers of two latest releases can go a step further - by buying the only copy
    Geeks who rocked the world: Documentary looks back at origins of the computer-games industry

    The geeks who rocked the world

    A new documentary looks back at origins of the computer-games industry
    Belle & Sebastian interview: Stuart Murdoch reveals how the band is taking a new direction

    Belle & Sebastian is taking a new direction

    Twenty years ago, Belle & Sebastian was a fey indie band from Glasgow. It still is – except today, as prime mover Stuart Murdoch admits, it has a global cult following, from Hollywood to South Korea
    America: Land of the free, home of the political dynasty

    America: Land of the free, home of the political dynasty

    These days in the US things are pretty much stuck where they are, both in politics and society at large, says Rupert Cornwell
    A graphic history of US civil rights – in comic book form

    A graphic history of US civil rights – in comic book form

    A veteran of the Fifties campaigns is inspiring a new generation of activists
    Winston Churchill: the enigma of a British hero

    Winston Churchill: the enigma of a British hero

    A C Benson called him 'a horrid little fellow', George Orwell would have shot him, but what a giant he seems now, says DJ Taylor
    Growing mussels: Precious freshwater shellfish are thriving in a unique green project

    Growing mussels

    Precious freshwater shellfish are thriving in a unique green project