A recent report by StepChange has shown how payday loan debts have increased. Between 2011 and 2012 the highest increase was London with a 43% increase from £1,297 to £1,859. Birmingham showed the fifth largest increase of 32% with average payday loan debt of £1,240 in 2011 to £1,637 in 2012.
This is hardly surprising bearing in mind the payday loan industry has risen from £900 million in 2008/9 to £2.28 billion in 2011/12. During this period many of the payday loan companies have thrown caution to the wind in their offer to compete their prime drivers to get new business. This has been the accessibility and the speed by which the consumers can have money in their bank account.
The Office of Fair Trading has already carried out a detailed review of the industry and issued warnings to 50 of the largest payday lenders to improve their standards.
A number of politicians have also voiced concern about vulnerable individuals being targeted with these high cost loans, including Paul Blomfield, Labour MP for Sheffield Central. He appears to have cross-party support for his ‘High Cost Credit Bill’ which will be fully debated at the second reading on the 12th July.
The bill will seek to:
- Control advertising of high cost credit products
- Ensure clearer information on the cost of loans
- Making loans more affordable
- Introducing lending limits
- Capping excess charges
Next week will also see a meeting summoned by BIS to discuss whether tougher plans for the sector will enough.
It will be the first time that representatives from payday lenders, charities and government ministers will meet together in one room to come up with solutions to ‘widespread irresponsible lending’, highlighted by the OFT’s recent report into payday lenders.
The OFT is also expected to finalise its view this week of whether the payday lending industry should be referred to the Competition Commission. This is because the OFT are concerned about payday lenders competing on the speed of providing a loan rather than the cost.
Bev Budsworth from The Debt Advisor said:
“Short term lending has its place but only if you can afford it. I regularly see examples of payday loans advanced to people either on Debt Management Plans or IVAs who clearly are not in a position to pay back these loans. This then puts their IVA in danger of failure as the individuals then cannot afford to repay both their contributions and the payday loan back plus the harsh penalties for defaulting.”
