Latest figures released by the Consumer Credit Councelling Service reveal that the number of people that contacted them last year with worries about payday loan debt was just under 17,500 – an increase of just under 10k from 2010
News that complaints about payday loans is on the increase is being used as further ammunition by those seeking to have payday loans banned although it should be noted that the number of loans being taken out have increased drastically too. In 2006 just 300,000 payday loans were taken out but by 2010 that figure had climbed to 1.9 million.
Last week a commons committee that had looked into the industry urged the government to step in and take decisive action to prevent lenders offering their services to consumers who were ‘in a vulnerable position.’
The committee also called for the law that forces lenders to show the APR. They want it replaced it with a figure that shows the consumer what the total cost of the loan will be – in much the same way as we do on our compare payday loans chart. This was welcomed by the industry who have long argued showing what a 4 week loan will cost you if you had it for a year is confusing for the borrower.
Clearly there is going to have to be movement from both the lenders and the people calling for payday loans to be banned. A ban is not going to happen because the industry brings in too much needed revenue for the Chancellor but the lenders do need to get their act together and regulate themselves better.
One way all parties could improve the situation is to point out what exactly payday loans are for. One TV ad currently running shows the actress explaining how she took out a payday loan so she could take herself and her partner away on holiday. Not really responsible advertising in this writers opinion.
We recently spoke to a guy who wanted some advice after taking out a £500 loan so he could go on his mates stag night. When it was pointed out that wanting a night out is not really the financial emergency that payday loans were intended and even if it were, £500 was a bit excessive for a night on the lash he responded matter of factly that only half of the money was for the night out, the rest he needed so he could purchase a couple of blow up dolls for the party!
You will be paying around £25 for every £100 you borrow so you really should only take one out if it is going to cost you more if you don’t. For example, to prevent an overdraft charge or to prevent a utility being cut off and forcing you to pay a reconnection fee. If the bank is going to charge you £40 for going £100 overdrawn then clearly it pays to take out the payday loan and paying the £25 interest.
In general, people get this. Your average payday lender is an above average income earner. When used for their purpose they are a very handy addition to the loan market and if current growth continues they could well over take credit cards in a few years despite what the scaremongers would have you believe.
While much of the press and some MP’s used the Consumer Credit Councilling Service figures to bash payday lenders it’s worth noting that although they had 17,500 people contact them about payday loan related debt, that figure was less than 5% of the total number of people who contacted them about a debt problem and that’s despite the fact that payday loans are one of the only forms of credit on the increase.
The trouble is “less than 5% of those seeking debt advice had run into problems with payday loans” as an headline isn’t half as dramatic as “complaints about payday loans more than double.“