Payday Loans spiralled over first 6 months of 2014 ñ Further reform needed by FCA, says StepChange
Payday loans continue to adversely affect the British public, as new data released by debt advice charity, StepChange, reveals that the number of payday debtors with no option but to seek aid has increased by an estimated 42% over the first 6 months of the year.
StepChange said it received 43, 716 people from January to July of this year, which marks a significant increase on the 30, 762 advice seekers during the same months in 2013. The gross amount of debt, owed by the advice seekers, increased by £21m to £72m from 2013 to 2014.
The debt charityís findings follow the Financial Conduct Authorityís (FCA) show of strength in July, when it proposed the instalment of a £15 cap on ëlate feesí and exorbitant levels of interest to prevent payday lending firms from fleecing their artless clientele. The FCA has also moved to curb the amount payday lenders can take from a borrower to 0.8% per day, on interest and any outstanding fees, of the borrowing term. As such, the consequences will be far less costly to defaulting customers for they will never be subjected to repayment which exceeds double the amount borrowed.
These will come into play from January of next year, however as far as 2013 is concerned, payday lending has enjoyed a purple patch which has endured for too long.
Yet, the latest data casts shadows over whether the FCAís measures are far-reaching enough, with StepChange itself calling for a more uncompromising response from the FCA. The debt charity believes the £15 cap could be reduced further, a lower cap on the overall amount that can be paid back and regulation aimed at preventing lenders from dishing out high-risk loans to unsuitable candidates.
StepChange chief executive Mike O'Connor said: 'High-cost short-term credit is rarely the answer to financial difficulties. While, the FCA's proposed price cap is a crucial step forward, there is still much work to be done to ensure that payday loans can no longer plunge people into a cycle of unsustainable borrowing and entrenched financial hardship.
The 43, 716 people already to have contacted StepChange is by no means an accurate reflection of the number of borrowers grappling with payday charges, with the majority of people too abashed at their decision to seek advice. Additionally, a great number of payday debtors are not aware of their rights, believing the corner theyíve been backed into inescapable. However, if adept advice is sought with no small degree of haste, debt advice organisations and financial legal services could provide much needed relief.
In many cases, when contact is made between a relevant third party and lender, money that was illicitly or furtively taken is immediately restored to the borrower, or recompense appears in the form of reduced charges. Yet even when negotiations do not go so smoothly, caseworkers exhibit exemplary diligence in their examination of the terms and conditions of borrowersí loans remaining focussed on identifying any unfair tactics deployed by payday lenders in pursuit of borrowersí cash.
'Consumers will continue to need access to short-term credit and FCA action should also stimulate the reform of this market. This needs to include problems in the adjacent markets including overdrafts, logbook loans and home credit where consumers also suffer detriment:í OíConnor remarked.
'The goal of an affordable lending market treating consumers fairly will also involve others but the FCA has a critical role to play in creating the right environment.'
The Competition and Markets Authority (CML) values the average first payday loan taken out at £260. While StepChange consider their average client to possess a net income of £1305 a year. As such, the current cap would compel payday borrowers to part with a weighty proportion of their income and thus, StepChange are piling pressure on government to introduce more meaningful reform.
If concise legislature is not proposed to iron out further kinks, then the payday situation could worsen still; this is the message being broadcasted by StepChange.