Putting the squeeze on ‘unscrupulous’ high cost lenders

THE payday loans industry has been pilloried by MPs, local authorities, newspapers and even the Archbishop of Canterbury.

It stands accused of hitting customers with escalating interest rates and trapping them in spiralling debt, while earlier this week one consumer finance expert told MPs that payday lenders are essentially “grooming” the next generation of borrowers.

Martin Lewis, the founder of MoneySavingExpert.com, said one in three people with youngsters under the age of 10 reported that their children could repeat payday loan advertising slogans.

He told the Commons Business, Innovation and Skills Select Committee: “I think we are in danger of grooming a new generation towards this type of borrowing. And if you think we’ve got problems now you wait until 10 years’ time. Grooming is the right term. We’re talking about a market that didn’t exist five years ago.”

The beleaguered payday loans companies have hit back at critics, saying they are trying to lessen the effect of bad debts. Wonga’s chief operating officer Niall Wass is among those who have spoken out, claiming the company’s business practices are being misrepresented and that the vast majority of its customers are satisfied.

It comes as research shows that more than a million people plan to take out a payday loan to cover the cost of Christmas. The Money Advice Service says one in 40 people surveyed are thinking about turning to a payday lender to fund their seasonal spending. A third of consumers also said they would ramp up their credit card debts to pay for the festivities, while nine per cent admitted they are still paying for last year.

It’s a worrying trend and in Leeds council bosses are looking at measures to stop some of the city’s poorest families from falling into this cycle of poverty and debt.

Their Take a Stand Against High Cost Lenders campaign aims to tackle high-cost lending following a recent boom in people turning to lenders and loan sharks to make ends meet. The legal high-cost lending market in Leeds is believed to be worth in the region of £90m per year and around 22,500 people are thought to have taken out payday loans to pay their bills.

Keith Wakefield, leader of Leeds City Council, says high cost lenders are targeting communities that are already struggling with poverty.

“People in desperate situations are being trapped by unscrupulous lenders who profit from loans that are often totally unaffordable. Practices such as repeatedly rolling over loans make the situation even worse for those struggling to deal with debt.”

He says council leaders are teaming up with voluntary, private and public sector partners to support some of the city’s most vulnerable residents. “We’ve already taken action locally by blocking access to the websites of high cost lenders from council networks, including in libraries and one-stop centres, and by increasing access to advice services.

“As well as a high-profile city-wide awareness campaign to remind people that there are alternatives to high costs lenders such as credit unions, we will be working within communities and schools to help individuals deal with money issues and to reduce dependency on high-cost lenders.”

The fact that so many people are turning to payday lenders suggests they are providing a service that people need. However, Labour’s Sheffield Central MP Paul Blomfield says they must be properly regulated.

“People do need short term credit for when there’s a crisis and it’s a failure of our banks and our financial institutions that they don’t offer more credit opportunities and that does need to be addressed. But it’s no excuse for payday lenders to operate unregulated.”

Last month he launched the Charter to Stop the Payday Loan Rip-Off, a campaign for tougher regulation of payday lenders, set up in response to the Financial Conduct Authority’s proposals for regulating payday lenders which he feels doesn’t go far enough.

“They are a step in the right direction but they fall short of what we want to see in terms of the affordability of loans.”

Mr Blomfield welcomes the move to limit people to having just two roll over loans, but says there’s still an issue of people being able to borrow money they can’t afford. “They don’t get checked to see if they can pay back the loans and their other credit commitments don’t get checked,” he says. “I don’t want to kill the products, but I do want to end the exploitation.”