UPDATE: 1 July 2014 – new rules from the Financial Conduct Authority (FCA) means that payday loan companies:
- cannot rollover an outstanding payday loan balance more than twice
- must send the debtor an information sheet with contact details for various debt advice organisations. A copy of this information sheet can be seen here
- cannot make more than two attempts to deduct money from a debtor’s bank account by means of Continuous Payment Authority (CPA) unless a rollover has been agreed.
- Must now include a prominent risk warning on all financial promotions.
We say that payday loans should never be used to pay debt, but the payday loan sector also needs to take their customers’ financial situations into account.
Below we’ve outlined seven key concerns relating payday loans that we’ve highlighted this week, ones that are causing harm to consumers.
1. Poor lending checks
Only six of the largest 50 firms make any attempt to check income (according to the OFT)
2. Rising numbers and balances
Last year 36,413 people contacted us with payday loan debts, more than double 2011 figures. The average payday loan debt of our clients is now £1,657, in 2011 it was just £1,267
Three quarters of lenders are renewing loans without checking affordability (OFT)
4. Multiple payday loans
7,221 people contacting us had five or more payday loans in 2012, up from just 716 in 2009
5. Repeat borrowing
The University of Bristol found that the average payday loan customer takes out five such loans each year
6. Misusing Continuous Payment Authority
We’ve seen cases where money has been taken from people’s accounts leaving them unable to cover food and housing costs
7. Default interest and charges
We hear from clients of punitive charges and interest being added that far outweigh the original loan amount
If you’re struggling with debt, payday loans aren’t the answer. Take the first step towards a debt free future by using our free online Debt Remedy tool.