Twice as many people now seeking help with payday loan debts
Average debt of those in trouble was £1,657, up from £1,267 in 2011
Simon Read is Personal Finance Editor at The Independent. He edits the Saturday Your Money section and writes the Daily Money column and Wednesday’s Midweek Money section in i newspaper. He also writes for the news and business pages of the Independent and i newspaper and is a regular money commentator on TV station London Live. He has won numerous awards including Consumer Finance Journalist of the Year.
Tuesday 07 May 2013
The number of desperate people seeking urgent debt help after borrowing from a payday lender doubled last year.
Debt charity StepChange helped 36,413 people with payday loan debts in 2012, some 20,000 more than the previous year.
But there were not only more than twice as many worried debtors, the amount they owed also climbed considerably. The average debt of those in trouble was £1,657, up from £1,267 in 2011.
The charity warned that people are being left in a position where monthly repayments would leave them with no money for living expenses and push them further into a spiral of indebtedness.
Worse, the charity said it believes that the dramatic growth in the numbers seeking help is evidence that loans are being made to people who are unable to afford to repay and forces many people into an unsustainable cycle of dependency on payday loans.
In one instance the charity was contacted by a couple with 36 payday loans between them.
Delroy Cornaldi, StepChange’s director of external affairs said: “These findings are yet more evidence of the scourge of payday loans. With household finances increasingly under extreme pressure and access credit far less available, many face the unenviable choice of using payday loans simply to make ends meet.
“While recent actions by the Office of Fair Trading (OFT), including the revocation of a lender’s licence and the proposed referral of the industry to the Competition Commission, are welcome news for consumers, there are still widespread problems across the payday loan sector.”
However several promising signs that the battle to control rogue payday lenders is growing have emerged.
The OFT said it has now contacted the UK’s 50 biggest payday lender firms it has identified had problems. The regulator investigated the firms over a 12-month period and published a damning report in March which revealed evidence of widespread, irresponsible lending and lenders failing to comply with the standards required of them.
It proposed to refer the payday lending market — where short-term loans are charged at APRs higher than 4,000 per cent — to the Competition Commission after it discovered evidence of deep-rooted problems in how lenders compete with each other.
The regulator has threatened the firms with losing their licence if they failed to meet strict new guidelines. A spokesman said: “The OFT has now written to all of the 50 payday lenders that were inspected during the compliance review. The letters required those lenders to demonstrate they are trading in compliance with their legal obligations. Any lender that fails to demonstrate this to our satisfaction risks losing its licence.”
The OFT revealed that it has begun formal investigations into the practices of three payday lenders, although it refused to name them.
The regulator recently revealed that three payday lenders have had their licences revoked and one other has surrendered it licence since publication of the OFT’s review of the sector in March.
But The Independent’s own research on the OFT’s Consumer Credit Register has shown that two more firms have surrendered their licence in the last two weeks, after being contacted by the OFT.
However one – Paydayloan.co.uk – still appeared to be in business last night even proudly claiming on its website that it: “has been around since 1998, making it the longest running UK payday loans company!”
The firm – which is based in Slough High Street - surrendered its licence last Thursday 2 May which means it has been outlawed from doing business since then.
The other firm which surrendered its licence on 25 April was Liverpool-based Anfield Cheque Cashing Centre.
The Independent was unable to contact either firm to find out why they have surrendered their licences but the OFT confirmed that the companies were among the 50 investigated by the regulator.
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