New figures show payday loan problems continue to worsen, urgent action required
11 July, 2013
Problems with payday loan debts have continued to worsen during the first six months of 2013, according to StepChange Debt Charity. Between January and June the charity helped 30,762 people with payday loan debts, nearly the same amount as for the whole of 2012, when the charity helped 36,413 people. While the amounts owed have only risen fractionally, the number of people with five or more payday loans continues to increase rapidly.
The accelerating problems highlight the urgent need for reform of the payday loans industry and provide further weight to proposed changes to regulation set out in Paul Blomfield MP’s High Cost Credit Bill, which has its second reading in the House of Commons tomorrow (July 12).
Multiple debts
The charity is alarmed by the continued growth in the number of people with more than five payday loans, a clear indication that lenders are failing to conduct adequate affordability checks. Between January and June this year StepChange Debt Charity helped 6,663 people with five or more payday loans, for the whole of 2012 this figure stood at 7,221.
Rising balances
The average payday loan balance of StepChange Debt Charity clients for the first six months of 2013 was £1,665, up slightly from £1,657 in 2012. While the average balance appears to be stabilising, the figures still represent a nearly £400 rise since 2011.
High Cost Credit Bill
StepChange Debt Charity believes that the High Cost Credit Bill represents an opportunity to address the worst excesses of the payday loan industry and establish a specific set of proposals for the Financial Conduct Authority (FCA) when it assumes control of the market in April 2014. The charity believes the bill addresses a number of what it has identified as the key failings of the payday loans industry.
Affordability - the Bill would require mandatory affordability assessments and the introduction of payday loan debt ceilings, that would ensure that anyone already struggling financially cannot then become further indebted through the use of high cost credit. StepChange Debt Charity believes that no one should have payday loan debts in excess of £500.
Rollovers – the Bill would see the introduction of a cap on the number of times a loan can be rolled over. The Office of Fair Trading (OFT) has already established that three quarters of firms are rolling over loans without assessing affordability, despite this being a warning sign of financial difficulties.
Health warnings – the Bill would require that payday loan advertising carry health warnings highlighting the danger of high-cost credit. The charity says that in particular, payday loan firms must make clear that loans are not suitable for addressing long-term financial problems.
StepChange Debt Charity head of policy Peter Tutton said: “The widespread failings of payday loan industry are well established and the case for urgent reform is overwhelming.
“The problem of payday loan debts continues to worsen despite the introduction of new codes of practice by the payday loan industry. The fact that we are still seeing increasing numbers of people with five or more loans and clients with loans in excess of their monthly income clearly shows that payday loan companies are still failing to lend responsibly.
“Financially vulnerable consumers have been inadequately protected for too long. What is needed now is a clear plan from politicians, regulators and the payday loan industry that will deliver demonstrable evidence of positive change in the market by the end of the year”.
As part of its on-going commitment to provide consumers with comprehensive debt help and advice, the Charity has an in-depth section on its website dedicated to payday loans. It contains information about where to get help with payday loan debt, a guide, statistics, a video, suggestions for loan alternatives, and the chance for consumers to submit their own payday loan experiences.