by Mark Johnston
Crackdown on Payday Loans.
Payday loans are intended as a short term atop gap to tide a borrower over for a few weeks until their next wage. They are suppose to be a convenient way of assessing cash to help with unexpected emergencies.
However, it seems that this is not the case and many borrowers are instead racking up very expensive debts which swamp the size of the original loan due to payday lenders charging annual interest rates of several hundred pounds.
The industry says its lenders are providing a useful service to consumers sidelined by banks and building societies.
It comes though as no surprise that the Money Advice Trust (MAT) recently said that complaints about payday loans have doubled year on year to reach a record 20,000 across 2012.
The National Debtline has also reported a 93 per cent surge in the number of calls related to payday loans, it also disclosed that some caller admitted to taking as many as 80 different loans.
Payday loan companies such as QuickQuid, Wonga and Payday UK, have drawn heavy criticism for charging annual interest rates of up to 4,000 per cent a year.
Many experts have accused this industry of enabling vulnerable people, those who can not borrow elsewhere due to their weak finances, further in to debt.
Which?, the consumer group, executive director Richard Lloyd, has therefore suggested that “it is time for a crackdown on irresponsible lending, especially for high cost lenders who are exploiting consumers struggling in the current economic climate”.
Therefore the Office of Fair Trading (OFT) conducted an investigation in to the market in which they stated that they had uncovered evidence of widespread irresponsible lending by the leading 50 payday lenders who account for 90 per cent of the market.
This particular review found that payday lenders revenues appear to heavily rely on those customers who fail to repay their original loan on time.
Clive Maxwell, the Office of Fair Trading (OFT) chief executive, states “we have found fundamental problems with the way the payday market works and widespread breaches of the law and regulations, causing misery and hardship for many borrowers”.
Payday lenders have been given 12 weeks to change their business practice or risk losing their licences.
Russell Hamblin Boone, chief executive of the Consumer Finance Association, which represents payday lenders, said “as responsible lenders we fully support the call to rid the industry of the poor practice and consumer detriment highlighted in reports”.
The government is also planning to bring in tougher rules on how payday lenders advertise. Under the new government plans payday loan companies could be forced to carry “wealth warnings” about the interest borrowers will have to pay.
These firms could also be banned from advertising at certain times of the year, such as January and before the end of the month, as this is when people are most short of cash.
Consumer Minister, Jo Swinson, said “when consumers are in financial need, we are absolutely committed to making sure they are not taken advantage of or harmed”.
Story link - Crackdown on Payday Loans.
Related stories to : Crackdown on Payday Loans.