Help us to clean up payday loans

The problems with the payday loan industry stretch beyond a few rogue lenders. Here's what we want to see happen.

People getting into debt problems with payday loans is something we’re seeing more and more of. In the first six months of 2013 we spoke to nearly as many people about payday loans problems as we did in the whole of 2012.

The Financial Conduct Authority (FCA) recently set out proposals to curb the worst excesses of payday loan companies. We think it’s definitely a step in the right direction; however, there are areas where they could go further. There are widespread problems in the payday loans industry and we need tough new measures now to get rid of them.

Unaffordable lending

Do you remember the old woman who swallowed a fly? If you’re not familiar with the old nursery rhyme, she swallowed a fly to begin with and then kept swallowing bigger animals to catch the animal she’d previously swallowed. This analogy is often seen with our clients. They take out a bigger payday loan every month just to pay off the one they took out the month before. 

Getting into debt with payday loans is a slippery slope. The average payday loan debt of one of our clients is £1,665, more than their monthly income. This highlights the fact that many people are being handed one unaffordable loan after another which they simply cannot afford to repay.

More than just a few bad apples

19 payday lenders recently exited the market following an Office of Fair Trading investigation, so it could be tempting to think things are on the right track. However the problems we see don’t just come from a handful of rogue lenders. It’s the whole industry that’s in need of reform.

We think it’s too easy for people to get themselves into a financial mess with payday loans. Lenders across the sector are causing problems by...

• carrying out inadequate lending checks

• rolling over unaffordable loans

• not preventing people from getting into difficulty with multiple payday loans

We’re speaking to more and more people with five or more payday loans and we think that stricter rules on payday loans will prevent much of the harm we see every day.

Horror stories

We think it should be much harder to get into difficulty with payday loans – but when customers do encounter problems, they should be treated fairly.

Our helpline advisors regularly hear horror stories from young mums who have had their bank accounts emptied by payday lenders and don’t have anything left to feed their kids with. We’d like to see new rules put in place to limit the ability for payday loan companies to raid their customer’s bank accounts at will.

It’s not snobbish to highlight the problems in the industry

There’s been an interesting debate in the press lately about what action needs to be taken over payday loans. The Archbishop of Canterbury says he wants to compete Wonga out of business but industry representatives have dismissed payday loan critics as ‘snobs’.

However, like the Church, StepChange Debt Charity’s concerns about the payday loan industry aren’t down to snobbery. They’re based on real life evidence that we hear from our clients every day. It’s not that we don’t want payday loans to exist. Instead, we want new standards to be introduced to protect people from getting into trouble.

How to clean up the payday loan industry

We’ve asked the new regulator, the FCA, to take stronger action to clean up the payday loan industry. We want to see:

• stricter lending limits to prevent people taking on unaffordable loans

• tighter control of how payments can be taken out of bank accounts

• a cap on rollover and default charges to stop small debts from spiralling

• health warnings on all payday loan advertising to explain the risks of high-interest borrowing

Take action

We’ve also been working with MPs and other consumer groups like Which? and Citizens Advice to formulate a “Charter to Stop the Payday Loan Rip-Off”.

This charter, organised by Paul Blomfield MP, urges the Government to bring in key changes to put the industry in order.

If you think that it’s time for tougher rules on payday lenders then you can show your support by signing the payday loan charter petition, or ask your MP to support reform to payday loans.

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