StepChange Debt Charity welcomes parliamentary action on payday loans
17 June, 2013
StepChange Debt Charity has welcomed today’s announcement by Paul Blomfield MP that he is introducing a Private Members’ Bill which will further regulate the payday lending industry.
Delroy Corinaldi, external affairs director for StepChange Debt Charity, said: “This bill represents a significant opportunity to address some of the widespread failings that are endemic in the payday loan industry.
“There is a pressing need for reform and this bill offers politicians, regulators and the payday lending sector the chance to come together to help curb the worst excesses of the industry and provide much needed protection for financially vulnerable consumers.
“StepChange Debt Charity has seen too many instances where consumers have become trapped in a cycle of dependency on payday loans, driving them further and further into financial hardship. It is now crucial that steps are taken to ensure that this can no longer be the case.”
Widespread industry failings
StepChange Debt Charity has identified a number of key areas in which payday loan firms are contributing to serious debt problems for hundreds of thousands of borrowers across the UK.
Poor lending checks – the Office of Fair Trading (OFT) found evidence of “widespread irresponsible lending” across the sector and that only six of the largest 50 firms make any attempts to make proper income checks.
Rising balances - between 2011 and 2012 the average payday loan balance of a StepChange Debt Charity client rose from £1,267 to £1,657. In 2012, the charity was contacted by 36,413 with payday loan debts, more than double the number in 2011.
Rollover –The OFT found that three quarters of lenders are renewing loans without checking affordability, even though this is a clear warning sign that a borrower could be experiencing financial difficulties.
Multiple loans – multiple payday loans are a key driver of acute repayment difficulties. Last year 7,221 people contacting StepChange Debt Charity had five or more payday loans, up from just 716 in 2009.
Repeat borrowing – government commissioned research from the University of Bristol suggests it has become normal for payday loan borrowers to get trapped into a cycle of high-cost debt. The average payday loan customer is taking out 5 payday loans a year – in effect, nearly one every other month.
Misuse of Continuous Payment Authority (CPA) – StepChange Debt Charity has seen numerous examples of customers caused significant distress by lenders misusing CPAs. This includes cases where money has been taken from people’s accounts leaving them unable to cover food and housing costs.
Default interest and charges – payday loans are particularly expensive for borrowers who cannot afford to repay on time, as punitive charges and interest are added. In one case a StepChange Debt Charity client faced a total debt of £1,830 for loan of £120. The lender had applied two overdue penalty charges (£80 each), a debt recovery fee (£100), 330 charges for unsuccessful attempts to recover payment (£5 each; a total of £1,650) and £178 in interest (1 percent on the original loan principle every day).