People seeking advice on payday loans almost double in number

March 10, 2014

Luke-Notley small (Custom)The number of people struggling with payday loans who sought advice from charity StepChange in 2013 rose 82% from the previous year.

The charity were approached by 66,500 people struggling with high-cost, short-term loans totalling £110m last year, compared with 36,400 with a total debt of £60m in 2012.

The payday loan industry has faced intense criticism recently, with accusations including the charging of excessive interest rates, sometimes as high as 5,000%. The Financial Conduct Authority (FCA), who will take charge of regulation in April, has already said it will limit the number of times a loan can be extended, and it has been told by the government to set a cap on the amount that lenders can charge.

According to StepChange, the average payday loan debt of a person seeking advice in 2013 was £1,467, much more than the average client’s income of £1,381. The average amount of loans was three, but 13,800 people had five or more loans.

The charity said it has seen many cases involving debts which are excessively inflated by lenders adding on extra charges and interest. In one case, a man was helped by the charity because his original £200 debt rose to a staggering £1,851 in just three months.

StepChange is calling for real-time credit checks, to ensure borrowers are able to safely repay the loans. It also wants a limit on rollovers so that loans are not able to be extended more than once. It also called for a cap to limit the amount of charges and interest applied to loans that people are having trouble repaying.

Mike O’Connor, chief executive of StepChange Debt Charity, said: “The widespread harm and misery caused by payday loans continues unabated. We hope the FCA’s proposals will address some of the areas of consumer detriment, but on issues such as affordability checking, rollover and repeat borrowing, there is an urgent need for even more radical reform.

“The industry has failed to address the problems, causing untold misery and damage to financially vulnerable consumers across the UK.”