Payday Loans have become a hot topic and a regular feature in the British press week in, week out. The market has grown significantly and although the Office of Fair Trading (OFT) have no official figures on exactly how much the sector is worth it estimated it at around £900 million in 2008 with Consumer Focus estimating the total value of loans made in 2009 at £1.2 billion. StepChange Debt Charity (formally the Consumer Credit Counselling Service) seen a 109% increase in cases involving payday lenders between 2011 and 2012.
There are around 240 payday lenders licensed by the OFT (with responsibility for licensing soon to move to the FCA) and operate over the internet, on the telephone or in high street shops. Some lenders sponsor prime television programmes, some have animated characters which spring up on TV so often every night that we barely notice them and others hire Z list celebs like now-bankrupt, ex-Iceland, Prawn Ring ambassador Kerry Katona to front their outfit.
In June this year, Wonga, one of dominating forces in the sector, increased its representative APR by 1,600% to a total of 5,853%. Sure, Wonga and other payday lenders will tell you that the measure of APR is misleading for short-term loans but if a consumer gets into difficulty and cannot pay back the loan as agreed, pay day lenders have shown themselves less than sympathetic and only too happy to continue to charge interest, penalty charges and additional default and admin charges. All behaviour which places considerable stress on the consumer and in many cases drives them into further debt by taking out one loan to service another and perpetuating the cycle of unaffordable debt.
The normalisation and accessibility of payday loans is frightening. It's easier to get a payday loan than it is to get a library card and in the current economic situation, with the government having axed the social fund safety net, those in crisis are being enticed by cartoonised 'hip' grannies or well placed, high street shops covered in posters offering 'instant cash' and a carefully designed shop with the appearance of a bank or building society; and those are the lucky ones. For those left in the cold by Mr Wonga et alia, there is Tenerife Tony and Big Mag's down the road who are only too happy to lend you the £500 you need for Christmas and if you thought Wonga's APR was bad... their APR will make your eyes water, not to mention the threat of violence, harassment etc.
The government is not doing enough to protect consumers from the unfair, aggressive, irresponsible and dangerous practices of payday lenders who paint themselves as some type of fifth emergency service. They are commercial enterprises which advertise easy money with little or no checks, they often do this using language designed to attract those already in debt or those who have established financial problems and they paint themselves as heroes who are only too happy to splash the cash to rescue you (often in just 15 minutes!).
The OFT likes nothing more than a wee investigation or writing a report but how this translates into real and tangible measures to control this sector is still to be seen. In Australia the APR of pay day loans is capped at 48% and in some states in America the maximum APR rate was set so low that many payday lenders shut up shop and went out of business. I am not a financial expert and have never had the displeasure of taking out a payday loan but I have assisted many clients whose lives have been blighted by the ready availability of this instant cash with little or no checks and the aggressive behaviour of lenders when things go wrong. Things have to change and the government needs to commit to a firm course of action to protect the consumer by kicking guidelines into the long grass and binding the sector with legislation designed to avoid consumers being taken for a ride and exploited much to the enjoyment of shareholders the length and breadth of the country.
Alternatives to payday lending for those in crisis
Join a Credit Union
Credit unions are financial cooperatives which serve its members (those holding an account) and provide an easy and less expensive way of borrowing amongst its members. As a comparison to the payday lending rates, the maximum interest rate charged by credit unions is 2% per month or 26.8% APR and this rate is set in statute. Lending is only part of the picture with credit unions as they offer members the ability to save throughout the year and pay dividends to those members saving with the union. To find details of a credit union near you or which you may be eligible to join, visit http://www.findyourcreditunion.co.uk/
Get professional advice
If you are experiencing financial problems you should contact your creditors immediately and let them know that you are unable to make your payment on time. The next step would be to contact an advice service to find out how they can assist you work with your creditors and sort your finances out. Your first port of call should be a free advice service, do not be tempted to enter into debt payment plans with other companies which will charge you a monthly fee which will inevitably reduce the amount being paid to your creditors.
The Citizens Advice Bureau provides free advice and practical assistance. If you live in England and Wales you can find your nearest Bureau here, if you are in Scotland you can find the details here and for Northern Ireland the information is here.
The Money Advice Service provides free, unbiased independent advice and has a section on its website dealing with debt and can be assessed here.
StepChange Debt charity (formally known as the Consumer Credit Counselling Service) is very experienced in the field of supporting those in debt and in addition to providing 1-2-1 support, they have lots of information available on their website to help you get your finances back on track and best of all, like the Citizens Advice and Money Advice Service their services are completely free. You can access their website here.
Don't bury your head in the sand; get help if you are experiencing financial problems and if you are receiving unwanted telephone calls and text messages from your creditors you have the right under the Office of Fair Trading Debt Collection guidelines to insist on the removal of your telephone numbers for the purposes of chasing any outstanding balance. If your insistence doesn't get you anywhere, send them this letter by recorded delivery.