23.01.12

The payday loan market has grown rapidly in recent years.

Advice agencies are dealing with more payday loan debt.

It’s too easy for people to access the short term benefits of pay day loans.

Recent research from The Association of Business Recovery Professionals,  showed that of the people they sampled who had taken a payday loan, 60% regret the decision and 48% believe the loan has made their financial situation worse. 

Only 13% believe their payday loan had a positive impact on their finances.

We have to be smarter in getting across the long term implications, and encourage people to make time to fully understand the terms & conditions before making their decision.

Action is required to curb Loan companies which lend on the premise that the person borrowing will not be able to pay back on the due date and which then charge extortionate sums of money for late, overdue and other payments –

– and loan companies whose model is to lend multiple loans to householders on very low incomes where the cumulative weekly repayment can be anything from 10% to 90% of their gross and in some cases net incomes.

The UK Government has set up the Money Advice Service offering free, independent, information to all.

I welcome the approach they are taking to make money advice much more user-friendly – to make it personal, practical, right there when you need, it either online, by phone or face to face.

As Consumer Focus state, it would be useful for mainstream financial services firms to consider how they could offer loans for smaller sums of money, and be clearer about the charging structures of their overdrafts.

In this context, Banks should also take a far more professional and personalised approach to the cash flow needs of their customers.

Between April 2009 and March 2010 Citizens Advice Bureaux in England and Wales advised 2.1 million clients on 7.1 million problems, an 18 per cent annual increase.

Over  60 per cent of work concerned debt and benefits – up 22%.

Bureaux in England and Wales dealt with 9,500 new debt problems every working day.

-      And this continues to show substantial increases.

Citizen’s Advice report a four-fold increase in the number of people with payday loans coming to them  for debt advice and a six fold increase in pay day loans as a percentage of all unsecured loan debts.

Their evidence suggests that people in long term financial difficultly are more likely to take out a Pay Day loan to try and deal with their problems - and yet, the payday industry remains inadequately regulated.

They have seen financially vulnerable consumers unprotected from a variety of unfair practices carried out by payday lenders, lost in a system that offers little protection and inadequate access to affordable credit. .

As Save the Children state “Households with a low or variable income often have a poor or non-existent credit history and are therefore unable to access reasonably priced credit from mainstream lenders”.

Often the only option available is from commercial lenders who charge high interest rates on goods with a mark-up on retail prices.

The annual percentage rate charged by commercial lenders can vary from 50–1,000%, compared with less than 30% APR charged by a mainstream lender.

A basic household cooker can cost a family without access to low-interest credit a total of £669, more than two and a half

times the cost of the same cooker bought outright.

Moneyline Cymru and Community Housing Cymru are working with Citizens Advice and the Wales Housing Debt Helpline to help tenants to access money and debt advice.

Moneyline Cymru,a social enterprise,  part funded by 16 housing associations, provides money, advice and credit  to disadvantaged people with ‘thin’ or negative credit files who are usually denied finance by mainstream outlets like banks or credit unions.

They report increasing lending volumes and, importantly, almost 100% of new customers opening a savings account.

The Welsh Government must maximise the freedoms delivered by changes to the UK Credit Unions Act, which came into force this month, described by the Association of British Credit Unions as a “major breakthrough in the delivery of Credit Unions service to communities around Britain”.

Credit unions are now free to extend their reach and work with organisations such as housing providers, community groups, employers, social enterprises and charities to bring financial services to new groups of people.

Let us alert people of the true cost of pay day loans and ensure they are offered viable alternatives.