Payday loans: 7 key concerns we think need to be addressed

posted by in Budgeting

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.
Payday loans neon sign

We can help you deal with payday loans

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

3. Rollovers

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.

We're the UK's leading debt advice charity, and we've been helping people break free from problem debt for 20 years.

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  • Laura Knight

    I’m not a fan of payday loans, but shutting these companies down won’t solve the problem of some people being pushed into poverty. There will remain the need for some people to borrow small sums with websites like SterlingStore.co.uk at short notice. Fixing the problem is not so much about stopping the lending, but more to do with stopping the sanction of benefits because of arriving 5 minutes late to a jobcentre appointment, and increasing low wages to help people help themselves. We need some real wealth redistribution in this country then people wouldn’t be so desperate as to need money to pay a utility bill or put food on the table.