Are Payday Loans Out of Control?

by Mark Johnston

Are Payday Loans Out of Control?

With money getting tighter and banks lending less, it appears that consumers are increasingly having to turn to alternative providers of credit such as payday lenders.

Recent figures have shown that at least 20 per cent of home owners have admitted that they are constantly struggling to pay their mortgages.

Therefore it comes as no surprise that almost 1 million people in the last 12 months have turned to payday loans in order to cover their mortgage or rental costs.

Payday loans are designed to be a temporary financial solution until the next wage packet.

Campbell Robb, shelter the housing and homelessness charity’s chief executive, says “payday loans may seem like a quick fix, but the huge interest charges mean things can quickly spiral out of control”.

Debt counselling charity, Stepchange, has recently warned of the growing danger of reliance on payday loans as they commonly come with annual interest rates of up to 4000 per cent.

Last year, the national debtline received more than 20,000 calls from people with payday loan difficulties.

Michael Ossei at uSwitch.com, a comparison website, said “worrying numbers of people are being hung out to dry at a time when they need help to resolve their financial difficulties”.

Earlier this month the Financial Ombudsman Service (FOS) revealed that there has been a 75 per cent increase in complaints about payday lenders.

Huw Lewis, Wales minister for tackling poverty, suggests that “many payday lenders do not comply with basic compliance requirements, such as assessing the affordability of a loan for an applicant”.

The citizens advice bureau has recently seen cases of payday lenders lending to people aged under 18, those who have mental health issues and even cases of loans been taken out when people were clearly under the influence of alcohol.

A recent survey also found that around nine out of ten payday lenders did not ask borrowers for proof that they could actually repay the loan they were about to take out.

It seems that all these findings are at a time when payday lenders are under threat of being put out of business if they fail to prove to the Office of fair trading that their practices are ‘up to scratch’.

Gillian Guy, chief executive of the citizens advice bureau, has described the payday loan industry as “out of control” and she also added that it has shown a “complete disregard for customers”.

This said and according to a recent report by the public accounts committee ‘payday lenders should face stricter regulation to stop them from targeting the vulnerable’.

Some experts feel that the Office of Fair Trading (OFT), the current regulator of this particular sector, has been ineffective and it passively waits for complaints from consumers before acting.

However, an Office of Fair Trading (OFT) spokesman has said “far from being timid, the office of fair trading has taken strong, targeted action to tackle the areas of greatest risk to consumers.

 

 

 



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