Further action needed on payday loans
30 July, 2013
Following today’s update from the Office of Fair Trading concerning its investigation into the payday lending sector, StepChange Debt Charity’s head of policy Peter Tutton said:
“The problems that exist within the payday lending industry and the dangers posed to consumers are now well established. Despite this, the number of people we help with payday loans looks set to almost double this year, while problems such as multiple borrowing and inadequate affordability checking by lenders continue to grow.
“The OFT’s action including its compliance review and referral to the Competition Commission have both been welcome. However, the OFT should now issue a detailed progress report on how it plans to address the continued consumer detriment caused by payday loans.”
Payday loan problems continue to worsen
- Between January and June 2013, StepChange Debt Charity helped 30,762 people with payday loan debts. For the whole of 2012, this figure stood at 36,413.
- 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.
- In the January-June 2013 period, the average income of a StepChange Debt Charity client with payday loans was £1,298, whereas the average payday loan debt of one of the charity’s clients stood at £1,665.
Notes to editors
StepChange Debt Charity has made the following policy recommendations to address problems with the payday loan industry:
• A payday loan debt ceiling of £500 to prevent borrowers from becoming trapped by spiralling multiple payday loan debts
• A cap on rollover of no more than one – to prevent unaffordable loans from spiralling
• Cooling off periods between loans (to stop loans being rolled over ‘by the back door’)
• A limit on default interest and charges, to stop small debts being inflated excessively; and
• A mandatory 30-day “grace period” for customers in financial difficulties (similar to the voluntary commitment made in the Lending Code) that freezes interest and charges while a borrower gets help with their debts
• A limit on repeat payday loan borrowing to stop the product causing longer term debt traps