But as the loans grow increasingly popular, so too do they
come under greater scrutiny. Last year one of the market leaders, Wonga, came
under fire for targeting pages on its website specifically at students, suggesting
that its products may have advantages over traditional student loans.
And more recently, the NUS' national vice-president of welfare,
Pete Mercer, criticised payday lenders for targeting vulnerable students on
campus.
He said: "Students are struggling to make ends meet and
this is having a real impact on their wellbeing and their education.
"It is clear that at least some payday lenders are
targeting vulnerable students and the government has so far failed to act, so
it is important we do everything we can to limit their ability to reach our
campuses."
Natalie Downs could not agree more. A student at the University of East London, she took out
payday loans to cover her living costs in London over the summer months.
Natalie was between student loan instalments and struggled
to find part-time work, and so she visited high street lender The Money Shop.
With hindsight she wishes that it had been easier for her to
find affordable credit –from her university or from a credit union, and that it
had not be so much easier for her to take out a payday loan.
"I felt like there was no other option, at the
time there was nothing I could do," she says. "I just went on the high street, there were no formal checks
to check my eligibility or that I was receiving an income, I just needed to
bring my chequebook, and I had to write post-dated cheques for each month."
Although Natalie only needed money to tide her over for a
relatively short period of time, the high levels of interests than payday
lenders demand meant that she was saddled with debt for months after.
“I was trapped; it was a constant cycle, even when
I got a job the money was still coming out and I had to further borrow to clear
that. I didn’t know how to end it and stop it from escalating
further.”
Natalie’s case is far from unique. 21-year-old Rachel Lucas, from Burnley, also took out a loan of
£400 with another well-known lender. Rachel admits that she didn’t really need the money, but
having access to such easy credit was too tempting to resist.
She says: “My wage didn't go far enough; I didn't want to
miss out on events so I borrowed. It was too easy; they seem not to care who
they lend money to as long as they can stick hefty interest on your loan.
“I paid my debt off slowly, £30 a week for six or so months.
It was horrible, especially as I lost my job soon after and I was paying out
£112 a fortnight on debt and bills, only having £10 for myself to pay for
living costs including food.”
Last year, independent charity the Money Advice Trust
reported that its National Debtline service took over 20,000 calls for help
with payday loans in 2012 - a 94 per cent increase on the previous year, and
huge 4,200 per cent increase since the onset of the financial crisis in 2007.
In real terms, this means that last year the Debtline took a
call for help with payday loans for every seven minutes that its phone lines
were open.
Hannah Walters is a debt advisor who works for the National
Debtline, and she deals with people struggling to repay payday loans every
single day. She believes that one of the main problems with payday
loans is that many companies do not carry out appropriate credit checks, which
means that it is far too easy for people to take out loans that they will never
be able to pay back.
“We see a lot more younger people taking them out,
it’s not necessarily always because they need to," she says. "They’re easy to access, and
once people take them out they get into a bit of a cycle. Once they’ve had one they realise that they can’t pay it
back at the end of the month so they take out another one to pay that one back
and the interest and charges do mount up.
“We have people who
have taken out a £100 loan and phone up because they’re now being chased for
£2,000, which isn’t fair.”
But some will argue that regulation of the industry alone is
not enough – and that an increase in payday lending is merely symptomatic of
bigger problems within the student community.
Christians Against Poverty is a UK-wide charity that offers
free debt counselling services, and the charity also runs a money education
course aimed at students.
Jan Spooner is the centre manager at the Altrincham branch,
and she believes that while tighter regulation of the industry important, this
should be coupled with financial education, to encourage young people to take
responsibility for their finances, and turn away from payday lenders.
She says: “I think
what is needed is for everybody, but particularly for young people, is money
education – that people learn how to budget, that people are given information
how to build a budget, how to live with a budget.
While Jan recognises that for some people – particularly
those on low incomes – affordable credit options do need to be available, she
believes that if financial education were taught from a young age as part of
the national curriculum, fewer students would find themselves turning so
readily to high-cost lenders.
But even with the best financial education, there will
inevitably be some students who still struggle to manage their money, and payday
lenders will aim to be there to bridge the gaps.
A Google search of 'payday loans for student' reveals that
several companies even target this market specifically – one, Smart-Pig.com,
offers loans of up to £250 over 90-day periods at an APR of 1,264 per cent.
To examine just how easy it is to access credit I applied
for a payday loan through high street pawn shop Cash Generator’s website.
Despite being a full-time student with only a part-time job, it took just seven
minutes to apply and be provisionally accepted for a loan, with only the barest
details entered correctly – the loan was still granted with my occupation
listed as ‘other’ and with an incorrect employer phone number.
After I did not complete on the loan, a barrage of
communication followed – no less than nine text messages and almost as many
emails were sent, urging me to finalise the agreement.
In response, a Cash Generator spokesperson said:
"The application for a loan was not completed, and a
full loan offer was not made. The
applicant dropped out before the review by our staff, at which point we would
have verified employment details and identified the incorrect information
supplied.
“Like most companies, when a customer indicates they want a
service but then do not complete, we would follow up. Contact will reduce as it becomes clear that
the applicant doesn't want to progress to the next stage of approval."
The Money Shop declined to respond to repeated requests for
comment.
