Payday loans: 500,000 Londoners to borrow for Christmas
- 12 December 2012
- From the section London
Nearly 500,000 Londoners intend to take out a payday loan to cover the cost of Christmas, according to insolvency advice experts.
R3, which represents lawyers and accountants offering insolvency advice, said its research showed 23% will take out payday loans over the next six months - double the rest of the UK.
Walthamstow MP Stella Creasy is calling for the cost of credit to be limited.
The Consumer Finance Association (CFA) said a cap would not work.
Payday lenders tend to offer short-term, high-interest loans to consumers, with the suggestion that the money is paid back within a month.
Elisabeth Matthews, of Hornchurch in north-east London, cared for her mother full-time until she died last year and, in need of extra money to pay mounting bills and fund an IT course to help find work, she took out a payday loan but missed a repayment.
She said: "I phoned them the next day and asked them if they'd taken the £100 out and they said they'd now cleared my account. They'd taken all the payments out - which was £680 - so they'd practically cleared my bank account for me."
She has since taken out another three payday loans to make ends meet and now owes more than £2,000.
"It's just like being on a rollercoaster, at the moment I'm going down and I'm just waiting for things to pick up for me, and it would be wonderful, " she said.
Stella Creasy MP, who holds debt advice clinics for her constituents in Walthamstow, said: "In most other countries these kinds of loans are capped and it means they don't cause as many debts to people.
"Here in the UK we know that one in three payday loans is taken out to pay another payday loan.
"People are taking them for essentials like food, like rent, like travel costs - so people get stuck in the spiral and end up borrowing in a way that pushes them into further debt for things that they can't do without."
A spokesman for the CFA, the body that represents many of the payday loan companies said: "We think that that would actually drive lenders out of the market and reduce the choice available to people who need this type of product.
"For many people, they aren't able to use the banks or they choose not to use the banks, they don't want to add a long-term debt to their credit card, they prefer this short, simple, low commitment project."
In November, the government announced it would change the law to allow restrictions to be imposed on the interest rates charged for so-called "payday loans".
Ministers will amend the Financial Services Bill to give the planned Financial Conduct Authority the power to limit charges.
Carl Packman, a personal debt journalist, said greater regulation needed to come sooner rather than later.
"These changes, though encouraging, are probably not going to be taking place until 2014.
"Families are getting themselves saddled with bad debt from payday lenders right now, so the government really needs to take action on this immediately," he said.