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3.5 million people could use payday loans in 2012




Stella Creasy, the Labour MP for Walthamstow, has called on the government again to investigate so-called 'payday' loans and regulate the market.

 

 

Payday loans are given with extremely high interest rates, some as high as 3,000% APR, but companies defend them because they are marketed as a quick way to tide someone over when they run out of money mid-way through the month. Some financial experts believe people are tempted to use payday loans as a way to avoid high bank charges for going overdrawn, or to rely on them as a form of easy credit.

 


However, new research suggests that almost one third of people who use this type of credit are taking out new payday loans to cover repayments on the payday loans they already have, creating a deeper and deeper cycle of ongoing, expensive debt. Some providers offer their customers the chance to 'roll over' a loan into the next month, compounding the interest and increasing the amount owed.

 

 

Fees for payday loans which remain unpaid can make it very difficult for a customer to stay on top of their repayments, and in many cases, the amount owed can increase very rapidly. Companies typically charge as much as £50 per reminder letter, and they often send a letter every two days.

 


Ms Creasy highlighted the fact that ex-servicemen and members of the British armed forces are particular targets; one company, QuickQuid, has a special site solely to attract business from military personnel. It charges more than 1,700% interest on its loans. Its parent company, DFC Global, have been banned from charging excessive interest to US military personnel after the government intervened to cap rates. As many as one in three people who go to the Royal British Legion's debt advice service do so because of unsecured debt; Ms Creasy would like to see a similar cap on rates charged to military personnel in the UK.

 


R3, the insolvency trade experts, surveyed 2,000 people about debt. They found that 60% of people were concerned about the amount of money they owed, and 45% of people find it difficult to make their money last from month to month. Among people aged between 24 and 44, that percentage figure rose to 62%.

 


R3 also found that 32% of people who use payday loans were paying off old borrowing. In the next six months, they expect 7% of people in the UK to use a payday loan company. If this is true, it could amount to 3.5 million people.

 


The Citizens Advice Bureau have seen four times as many people approach them with debts caused by payday loans in 2011 compared to the same period two years ago.

 


Ms Creasy called the effect of payday loans "a spiral of misery" and called for the government to step in and restrict the amount of interest payday loan companies could charge. She said that people in the UK were totally without protection, and are being "bled dry. by these profit hungry predators". Any restrictions would also apply to doorstep lenders and hire purchase agreements.

 


The government previously said they would investigate the matter, but have not made any statements since July. The Daily Mirror journalist Nick Sommerlad created an e-petition in October to back up Ms Creasy's campaign.

 

 

Retirement Solutions (UK) Ltd are independent financial advisers that specialise in financial products for the over 50s. Visit the web site at www.retirementsolutions.co.uk



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