Charity’s alarm over soaring payday debts

Last year, StepChange Debt Charity helped 36,413 people with payday loan debts, almost 20,000 more than in 2011. In the same period the average amount owed by those seeking help from the charity increased by £390 to £1,657.

The charity said that it is “deeply concerned” by the evidence it sees of “widespread malpractice” across the payday lending sector.

Earlier this year, a damning report into the industry by the Office of Fair Trading also uncovered evidence of “widespread irresponsible lending”. The report was the culmination of a large-scale probe into the £2bn payday sector, including spot checks on household names such as Wonga.

Language used by lenders to reel in customers such as “Instant cash”, “Loan guaranteed”, and “No questions asked”, could either be misleading or, if true, were irresponsible lending, the OFT warned.

The Government is also moving to clamp down on the sector. Plans include limiting the number of adverts firms can put out per hour, the times they can advertise and forcing them to make sure that interest rates are displayed.

This week’s data from StepChange Debt Charity showed that the average payday loan debt of its clients now exceeds their monthly net income. The average monthly income of a client with payday loans is £1,320 per month, but the average payday loan debt is £1,657, the charity said.

StepChange Debt Charity said that this represents “clear evidence” that loans are being made to people who are unable to afford to repay, and forces many people into “an unsustainable cycle of dependency on payday loans”.

In one instance, the charity claimed it was contacted by a couple with 36 payday loans between them. The charity said that last year, 74 per cent of those people seeking help with payday loans had a net annual income of less than £20,000, while 42 per cent of clients aged under 25 had payday loan debts, up from 25 per cent in 2011.

Payday lenders were the biggest source of complaints made to the charity, despite the fact that only 19 per cent of clients have payday loans, it said.

The charity claimed that in one case a borrower contacted the charity having taken out eight separate loans with one lender totalling £9,000.

It said that his mother then attempted to help by making payments of £50, the lender then proceeded to take £6,000 from her credit card without permission. Interest and charges continued to be added until the total debt reached £15,000 and the client was forced to declare bankruptcy, the charity said.

StepChange Debt Charity’s director of external affairs Delroy Cornaldi said: “These findings are yet more evidence of the scourge of payday loans. With household finances increasingly under extreme pressure and access credit far less available, many face the unenviable choice of using payday loans simply to make ends meet.

“While recent actions by the Office of Fair Trading, including the revocation of a lender’s licence and the proposed referral of the industry to the Competition Commission, are welcome news for consumers, there is still widespread problems across the payday loan sector.

“The lenders and their trade bodies must now show they are committed to reform and the enforcement of their codes of practice, and the charity will work with the industry to improve practice. Otherwise regulators will have little choice but to take prompt and serious action to protect consumers.”