Simon Read: Rogue payday lenders must be closed down to protect the hard-up

Hardships are continuing for families this year. Housing charity Shelter reckons some seven million vulnerable folk have turned to expensive credit just to pay their rent or mortgages.

Borrowing to pay off other debt is a clear sign that finances are out of control. But at least the majority are buying some time to get their finances back on track by borrowing on overdrafts or credit cards. Frighteningly Shelter's research suggests around a million people have turned to payday loans, which can prove the most expensive way of borrowing of all.

As we report on page 55, experts are beginning to question the legality of elements of the payday loan industry while MPs have been leading a campaign to crack down on some of the more dodgy practices, such as rolling over loans.

The heart of the problem is the wrong people are using the loans. "A payday loan is for a short-term need or desire, not for managing long-term debt," points out John Lamidey of the Consumer Finance Association, a body which represents the payday loans industry.

He points out, rightly, that borrowing a small sum from a payday lender can help to bridge an income gap and avoid having to pay high credit card charges or unauthorised bank overdraft fees.

But the problem remains that the loans are easy to take out and, in many cases, lenders are sending texts and emails encouraging people to turn to short-term credit. This is a highly dubious practice. I've been sent the text myself and they appear not to be targeted at responsible borrowers but just anyone.

Worse, if anyone does become tempted, their details appear to be sold on to other lenders, leading to further texts and emails offering easy credit, which can only result in increased debt woes.

Indeed a Twitter campaign run this week by the debt charity Consumer Credit Counselling Service asking people to report spam loan texts yielding the alarming report from one person who claimed to get 90 texts offering loans on Christmas Day alone!

The net result of the texts is likely to be that at-risk people, who already have a scary debt problem, are the ones who will respond, clutching at the disastrous straw of cash that may give them a few days' grace, but turn their money woes into an even bigger problem.

Steve Perry, author of the book When Payday Loans Go Wrong, says: "Lenders do not care about how or why people want a loan, nor if they can repay it, nor do they want people to borrow just the once as there is no real profit in it."

He speaks from bitter experience, after ending up being caught in a cycle of taking out new loans every month to pay his bills and pay off existing loans.

The Consumer Finance Association tries to position payday lenders as responsible companies which check their customers can afford the loans. The nine members of the Association may be, but what about the hundreds of rogue lenders pushing their expensive deals onto vulnerable people?

For that reason, and not for the first time, I call for an end to these firms being allowed to add to people's money misery. The Office of Fair Trading should speed up its review of the sector and close down any firms which break the rules.

For starters they could look at Steve Perry's website at saynotopaydayloans.co.uk where there's plenty of evidence of firms that appear to be operating outside the law.

But our lawmakers should also act quickly to outlaw repeat borrowing or the rolling over of loans. Let the payday lenders make their profits, but not from people who can't afford their expensive wares.

There's little doubt that stock markets this year will be as volatile as last. Those who can't cope with fluctuations should think about moving savings to a safer home, while those sitting on a loss should consider selling up and finding fresh opportunities.

I suggested that last week to a fellow football player. He had punted a few mining shares a year ago, almost all of which have flopped. My advice to him was take what's left and find a new investment. His response? "I can't afford to. I'll hang on until the shares recover."

It's not the first time I've heard that sentiment and it won't be the last. But it shows a lack of understanding of how shares are valued, particularly speculative ones. To put it simply, the price is only how much someone is prepared to pay.

If a mining company strikes gold, people will pay more for its shares. If there's little prospect of good news, the shares will be worthless. Successful investors are the gamblers who learn a lesson from losing, rather than simply relying on hope. Cutting losses is an important part of any investment strategy.

s.read@independent.co.uk