We’ve all seen the adverts. Keep calm and carry on borrowing. The big sums are hidden in small print, the bottom line being that payday loans charge astronomical interest rates.
One company, fronted by former bankrupt reality star Kerry Katona, charges more than 2,650 per cent APR – and even has a “designer lending” section. Some charge up to 4,000 per cent. The Office of Fair Trading has now read the riot act to 50 payday loan companies who account for 90 per cent of the market – 12 weeks to clean up their act or risk losing their licences.
The ultimatum has been welcomed by consumer champions and specialist debt counsellors working for the Citizens Advice service which has seen a 10-fold rise in clients with multiple debt problems including one payday loan in the last four years. Blackpool North and Cleveleys MP Paul Maynard agrees: “We are all horrified when interest rates of 4,000 or 5,000 per cent are advertised for easy to access short term loans. I welcome any clamp down that will make it harder for companies to prey on some of the most vulnerable people in society; a tightening of the parameters around advertising will go some way towards that goal. Tougher regulation is only half the story. We need to ensure we do more to strengthen credit unions, as we do not want to drive people into the arms of illegal loan sharks.”
Janet Akl of the money advice unit at Blackpool’s Citizens Advice Bureau admits: “I’m amazed at the numbers of payday loan companies operating. Most are interlinked. We are conducting an anonymous survey which shows clients are often not told how long it will cost to repay, and no personal financial checks are made. We’re part of the campaign to hold payday lenders to account. These are fast but dangerous ways of borrowing money, desperate measures in desperate times.
“Many don’t understand the implications or the fact payments can come straight off their card or account at the cost of other bills. They’re supposed to be payday loans but most of the people we see are on benefits. Borrowers can always cancel payment authority. Banks may say go to the lender but if they’re asked to cancel a payment and they don’t they should refund any money paid out as it’s an unauthorised transaction.”
The OFT investigation reveals widespread irresponsible lending and failure to comply with standards required. Payday loans are supposed to be one-off short term loans costing an average of £25 per £100 for 30 days – but up to half of lenders’ revenue comes from loans lasting longer and costing more because they are rolled over or refinanced.
One Blackpool couple, who do not wish to be identified, say they settled a debt of £3,000 for their 20 year old son who had borrowed £100, repaid most, then rolled over the debt to finance a holiday on which he defaulted. Weeks after they settled the debt he got another £100 loan with the same company.
His mother, 58, a former civil servant, explains: “We’re out of our minds with worry. His girlfriend cleaned him out financially and maxxed their credit card. In spite of having learning difficulties he got credit with this company three times, at the cost of our peace of mind, bank balance and our credit history. We asked the company to blacklist him. It wouldn’t. Now we’re asking credit reference agencies for help.”
Gillian Guy, CAB chief executive, concludes: “Payday loans are proving toxic for many people. Unscrupulous lenders ramp up costs when customers can’t afford to repay, and empty bank accounts to claw back loans, leaving people without a penny to their name.”
l Call the CAB on 01253 308400 or the Blackpool Fylde and Wyre Credit Union on 01253 478827