The proportion of payday loan customers being hit with extra charges on their debt has fallen since a clampdown was launched, research commissioned by members of the industry suggests.
The Consumer Finance Association (CFA), which represents short-term lenders, commissioned the report into how payday loan customers have been affected by stricter rules for payday lenders.
The new rules have included forcing lenders to carry out tighter affordability checks and a cap being put on the overall cost of a payday loan. The cap was introduced in 2015, to stop fees spiralling out of control.
The research, conducted by the Social Market Foundation (SMF), found the proportion of loans on which consumers were charged extra fees, such as late payment fees, on top of contractual interest, has halved, from 16 per cent in 2013 to eight per cent in 2015.
The average loan size has increased by £11 in recent years, from £245 in 2013 to £256 in 2016.
The cost cap on loans appears to have had an impact, and someone borrowing £200 for 30 days would pay £36 less under the current average market prices than they would have done in 2013, the report found.
The research collected data from short-term lenders as well as carrying out a survey of more than 1,200 payday loan customers.
One in 16 (six per cent) customers said they would have used an unlicensed lender who is not a family member or a friend if they had not been able to access a short-term loan.
Nigel Keohane, research director at the SMF, said: “Policy makers should be vigilant about the potential risks to those who are excluded from the market.”
The Financial Conduct Authority (FCA), which introduced the tougher rules for payday lenders, recently said it was putting high cost loans under the spotlight, including payday loans, overdrafts, door-to-door lending and logbook loans - where someone’s car may be put up as security for a loan.
Leeds-based debt charity StepChange said earlier this month that it is still seeing many people struggling with problem payday loan debts.
It has previously been reported that more than 300,000 people contacted Stepchange between January and June - the highest half-year figure it has seen in records going back to 2011.
The tougher rules for payday lenders were introduced following an outcry from charities who reported seeing borrowers sinking into debt spirals with multiple payday loans that they could not afford to pay off.
The CFA said research found the typical customer today is likely to earn between £20,000 and £25,000, is male, aged between 25 and 39, and is in full-time employment.
Russell Hamblin-Boone, chief executive of the CFA, said: “We are witnessing a modern credit revolution, which has led to high industry standards and better outcomes for consumers.”
FEELING THE STRAIN
A NEW study reveals almost half of people in the North admit to being in debt and are feeling the strain weeks before Christmas.
The YouGov poll, which was commissioned by Leeds Credit Union in response to the Government’s Autumn Statement, showed more than one in threee people had personal debt other than a mortgage or a student loan. Leeds Credit Union has now joined forces with Asda and other responsible lenders to launch Affordable Loans.
Chief executive of Leeds Credit Union, Chris Smyth, said: “We want to make sure we support people across Leeds who have debts to no longer feel worried or trapped.”