Payday Loans continue to ëcause widespread harm and miseryí, say Debt Charity
A monumental 82% more people enquired for help with their monetary problems in 2013, a leading debt advice service has disclosed.
Step Change Debt Charity identified that over 65,000 people asked for help with their unsecured debt over the course of the last year, compared to 36,413 the year before. Worryingly, the total debt from short term loans that people have sought help for has risen by £50 in the past year, up to £110 million from 2012ís £60 million.
Step Change has urged the new regulatory body the Financial Conduct Authority to instigate ësubstantial reformí to the sector when it takes over as industry watchdog in April.
The widespread harm and misery caused by payday loans continue unabated," said Mike O'Connor, StepChange's chief executive. "
"The industry has failed to address the problems causing untold misery and damage to financially vulnerable consumers across the UK".
"We hope the FCA's proposals will address some of the areas of consumer detriment, but on issues such as affordability checking, rollover and repeat borrowing, there is an urgent need for even more radical reform."
New regulations on the horizon
The Financial Conduct Authority is set to ascend to the role of industry regulator from April this year, and have already identified their intention to implement a series of reforms in the sector that will see customers given far more financial protection than they currently enjoy.
The key issue that they are being tasked with enforcing is placing a cap on the level of interest that a creditor can charge to a borrower, though the FCA have also signalled their plans to limit the number of ërolloversí that a lender can take out to two.
Other forecasted reforms include the removal of the continuous payment authority feature that grant lenders the ability to continually debit a borrowers account until a full repayment is made, even if it does not have any money in it.
Payday loans have come under huge criticism for the somewhat excessively high interest rates they attached to their loans, which lenders have argued are equivocal to lower rate loans as they are intended to be taken out on a monthly, rather than annual basis.
Market leaders such as Quickquid and Payday Express charge interest rates of around 1900%, whilst Wonga has marketed loans with rates has high as 5000% in the past.
And Step Change have argued that whilst lenders are not wrong to outline that the loans are being mis-used, that nevertheless the excessiveness and severity in which interest and late charges are applied is making it severely hard for people to clear their debt.
The charity said that the average debt of a borrower who had got into contact with them stands at £1647, which compares to the average salary of its clients which stands at £1381.
And the company identified the nature of interest and late charges as the ëtipping pointí where borrowers can no longer afford to get out of their debt, citing an example of one customer whose debt grew to almost £2000 in the space of three months from an initial loan of £200.
"We continue to see numerous cases in which debts are excessively inflated through the application of interest and charges," the charity added.
But Russell Hamblin-Boone, chief executive of the Consumer Finance Association (CFA), has played down Step Changeís remarks, arguing that the current complexion of the industry is not that dangerous for those who have acquired loans.
"Data from CFA members shows they receive less than five complaints, upheld or otherwise, for every 1,000 loans," he said.
"Independent research shows 94% of their customers pay back their loans on time, but we will continue to fund and work with debt advice agencies to help people who get into financial difficulty," he added.
With the FCAís ascension to industry regulator imminent, it can be argued that the payday loan sector in its current carnation will be systematically eradicated over the course of the next 12 months.
The reality is that payday loan companies have utilised small print contracts and loan extension policies for too long now, and it is positive to see the installation of an authority that can finally bring an end to the profiteering that companies have enjoyed at the behest of vulnerable, low income earners in the UK.