StepChange Debt Charity welcomes government action on payday loans
6 March, 2013
StepChange Debt Charity welcomes today’s (March 6) announcement from the Department for Business Innovation and Skills about addressing problems within the payday loan sector.
StepChange Debt Charity has seen clear evidence of payday loans causing consumer detriment, and has raised concerns on a range of issues including high-costs, multiple borrowing, rollovers and excessive charges, poor affordability checks and the failure to identify those in financial difficulty.
The charity is seeing a growing numbers of clients taking out payday loans to address their financial problems, thus compounding their situation. Therefore it welcomes the announcement of potential restrictions on how payday loans are advertised to consumers.
Given the growing evidence that problems are now endemic to the market, StepChange Debt Charity supports the proposal to refer the industry to the Competition Commission, in order to establish whether the whole or parts of the market are failing consumers and taking advantage of those who are financially vulnerable.
The charity believes the government needs to work towards a package of measures to ensure that consumers are protected from bad practice and poor value for money which are exacerbating the debt problems of many of the charity’s clients.
Where competition failure or irresponsible lending cause detriment or poor value for consumers, the regulators should have powers to intervene, including the power to cap prices where this is appropriate.
Many people are becoming trapped in a cycle of using more credit to pay off existing debts; this inevitably leads to a situation where large and unmanageable debts can be quickly accumulated. It is essential that regulators have the tools at their disposal to address such obvious examples of consumer harm.
StepChange Debt Charity has seen dramatic increases in the amounts owed on payday loans. The average payday loan debt of a StepChange Debt Charity client is now £1,657, up from £1,267 in 2011. This figure is now higher than the average client’s net monthly income (£1,379), which indicates that people are finding themselves in a situation in which interest payments are leaving them with no disposable income left to cover basic living costs.
StepChange Debt Charity’s head of policy Peter Tutton said: “Payday loans are being used as a way of addressing financial hardship, thus making debt problems worse.
“We want to work with both the regulators and the industry to ensure that they do not push people into unmanageable debt.”