Payday loans debt quadrupled, advisory service says

 
Money Payday loans charge interest rates that are far higher than normal

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The number of people running into debt through so-called payday loans has quadrupled in two years, according to one debt advisory service.

Payday loans are small, short-term unsecured loans designed to tide people over until they get their salary.

The Citizens Advice Bureau says it is too easy to obtain such credit and is calling for tighter regulation.

But Consumer Minister Ed Davey said tougher measures could push people into the hands of illegal loan sharks.

For many people a payday loan is a quick and efficient legal way of getting hold of short-term credit.

If the money is paid back promptly on the next pay day, this type of lending can be cheaper than paying an unauthorised overdraft or a credit card charge.

However, if the loans - some charging interest rates of more than 4,000% - are rolled over, debts can quickly escalate.

'Not acceptable'

Peter Tutton, from the Citizens Advice Bureau, said ministers need to take action.

"The sort of regulatory regime isn't working to protect people, so there's work for the government to do.

"The government needs to look at consumer credit and get really serious about making it more effective.

"We need better sorts of messages to firms that it's not acceptable to treat people badly," he said.

The government said it is carrying out research but is not sure the answer is a cap on payday loan interest rates.

Mr Davey said: "In the last government - the Labour government looked at capping interest rate costs of credit three times.

"And the last Labour government rejected it three times because they were concerned that they would push vulnerable consumers into the hands of these illegal money lenders who are really the nasty of the nasty."

'Temptation'

Steve Perry: "I took a total of 64 payday loans worth £22,000"

The head of the Finance and Leasing Association, Stephen Sklaroff, said it is up to consumers to only borrow what they can afford to repay.

"There's a responsibility on the borrower, as well as on the lender, to make sure that all the information is on the table," he said.

But Marcus Painton, from Aylesbury, who got into debt through payday loans said the "temptation" of the loans can be "too much".

"It's the simplicity of it all, really. You can get in deep really quickly, which is what we did.

"They just take you for everything they can get. They're not concerned about your general circumstances. They just want their money, which is fair enough, but doesn't help you personally," he said.

Steve Perry, who took out 64 loans from 12 different companies over 18 months, leaving him with a debt of £22,000, told the BBC it was the "roll over loan process" that needed to be tackled.

"The repeat loans where people are going back month after month, either paying off in full and borrowing again or paying the interest only on a loan.

"People can do this for up to twelve months, every single month, this is what's really trapping people," he said.

 

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  • rate this
    0

    Comment number 21.

    'Fools and their money are always easily parted' - If you are so stupid that you live beyond your means and then sign-up for loans with eye watering interest terms there is only one person responsible. Good luck to anyone who runs a profitable business. It's not the lenders fault that people find themselves in debt and as the loan is unsecured it carries a greater level of risk for the lender.

  • rate this
    +4

    Comment number 20.

    These loans are short term loans of usually less than 30 days so the high APR figures quoted are quite meaningless but they have to be stated by law.

    The full cost of repayment is more important than APR when considering a short term loan

  • rate this
    -10

    Comment number 19.

    It's called Capitalism!
    I suppose you either think making money, charging huge rates of interest(1000% APRplus), is OK or you don't.
    Seem to remember, someone called Jesus, had a view of money lending!
    It seems to be, what Lehman Bros etc, did but on a smaller scale! Lending to people, who couldn't afford repayments.
    That worked out well didn't?

  • rate this
    +8

    Comment number 18.

    @10.Sue Doughcoup - and how do you propose people come up with a "rainy day fund" when they are already spending ALL their wages on the basics in life?

    This is the reality for a lot of people, this is why they take out pay day loans.

    Those who take them out for luxuries are in the minority.

    I think people like you should walk a mile in peoples shoes before commenting.

  • rate this
    +3

    Comment number 17.

    Any company who offers a financial service should be regulated regardless of that service.

    Though some people want to try not living beyond their means, if you havnt got it then you dont need it. And a bargain isnt a bargain unless you need it. Taking 64 payday loans? i'm sorry I just cant sympathise with people like that. I'd be interested what that money was used for. Beer anyone?

  • rate this
    0

    Comment number 16.

    These companies should be banned its just another way for people to get into debt.

  • rate this
    +1

    Comment number 15.

    There is a TV ad on now advertising loans at over 1700% !

    Those parasites should be ashamed

  • rate this
    +17

    Comment number 14.

    These short-term loan companies are deliberately targetted at one particular section of society and that is those whos wages barely cover their outgoings. As a consequence these people become trapped in a debt spiral and the only winners will be the loan companies, and the companies know this. They are not interested in your well-being only profit. Steer well clear of them is my advice.

  • rate this
    -1

    Comment number 13.

    @9

    The internet offers the possibility of checking out a company and your rights when things do go wrong. If you believe a company is guilty of any wrongdoing you can report it to the relevent authority and find someone else to do business with. If you have no choice but to take out a loan, do your homework first

  • rate this
    +5

    Comment number 12.

    When people are desparate they do stupid things unlike bankers and politicians there is no government bail out time for a national peoples bank to lend and outlaw these ripoff merchants

  • rate this
    +2

    Comment number 11.

    I would like to quote from the Office of Fair Trading Debt Collection Guidance OFT664 in particular section 2.9 Charging for debt collection; 2.9 Charges should not be levied unfairly; 2.10 Examples of unfair practices are as follows: e. applying charges which are disproportionate to the main debt. If a debt collection agency is collecting debts created by these companies surely this is unlawful.

  • rate this
    -4

    Comment number 10.

    What is happening to the world? Can't people organise themselves these days? Whatever happened to the 'rainy day fund'. It's quite easy really. If you haven't got it, don't buy it. Something my parents taught me.

  • Comment number 9.

    This comment was removed because the moderators found it broke the house rules. Explain.

  • rate this
    +25

    Comment number 8.

    The most amazing thing is that these companies can advertise on the TV.

    I've seen ads that quote 1000% APR or more.

    Who made it legal for these companies to exist and equally, who made it legal for them to advertise ?

  • rate this
    +22

    Comment number 7.

    This is just irresponsible lending, There are many people out there who are struggling with their finances and this seems like a quick fix to their problems. People may get theirselves into circumstances where they wont be able to pay these loans back and enter into further difficulty. This is just loan sharking on a bigger scale.

  • rate this
    0

    Comment number 6.

    "2.
    Mad Max and Satan Dog Paddy

    This is Legalised Loan sharking and Racketering.... The adverts are on TV. Some with 2750% Apr.... Some with a lot lot more... You are dealing with people who would shame the characters in Goodfellas."

    Except willingly taking out such a loan, or being forced to at gunpoint, are fairly different things, no?

  • rate this
    +16

    Comment number 5.

    Anyone prepared to offer loans must be strictly regulated. There is no reason to deny these firms a fair and reasonable working profit; after all they are legitimate and take a place in the market that banks leave empty. It is not reasonable, however, for such firms to profit outrageously through as a result of someone elses hardship.

  • rate this
    +13

    Comment number 4.

    Pay day loans are nothing more than legalised loan sharks.upto 4000% interest rates?People moan about credit cards charging 15 to 25%,I know which I'd go for if stuck.I wouldn't even consider a loan, I'd rather go without.Its upto individuals to think about what they're getting into before doing it.Remember the old saying,if it looks to good to be true, it usually it usually is.

  • rate this
    +21

    Comment number 3.

    While these companies fill a niche` in the market a far more pragmatic approach to debt would be to weather the storm for a while and get yourself back into the black. I can understand how tempting it must be to take out a short-term loan but it really is doing more damage rather than solving anything.

  • rate this
    +8

    Comment number 2.

    This is Legalised Loan sharking and Racketering.... The adverts are on TV. Some with 2750% Apr.... Some with a lot lot more... You are dealing with people who would shame the characters in Goodfellas.

 

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