2nd September 2014
The number of people struggling with payday loan debts has soared by 42 per cent this year, debt charity StepChange has warned.
In the first six months of 2014 the charity helped 43,716 people with payday loan debts, compared to 30,762 in the same period last year.
Between January and June the charity handled over £72 million worth of payday loan debt that people were having difficulty repaying, up from £51 million in the first six months of 2013.
Borrowers who contacted the charity about their payday loan problems had on average £1,652 in debts.
The charity called for greater protection for vulnerable borrowers to help safeguard them against unaffordable debt.
The City watchdog, the Financial Conduct Authority(FCA), has announced plans to introduce a cap on the fees and interest charged by payday lenders.
It has proposed a cap on default fees of £15 and a total cost cap of 100 per cent on the value of the loan, so that borrowers should never have to pay back more in penalties than the amount borrowed.
But StepChange argues that the restrictions should go further.
The charity points out that the average initial payday loan taken out is £260, while the average net income of its clients with payday loan debts is just £1,305 per month.
This means that someone with a payday loan debt that reaches the 100 per cent cap would end up owing a substantial part of their income and could easily find themselves in financial difficulty.
Mike O’Connor, chief executive of the charity, says: “Today’s figures show that the payday market all too often fails to treat customers fairly, especially those in financial difficulty.
“High-cost short-term credit is rarely the answer to financial difficulties. While, the FCA’s proposed price cap is a crucial step forward, there is still much work to be done to ensure that payday loans can no longer plunge people into a cycle of unsustainable borrowing and entrenched financial hardship.”
O’Connor warns that it is not enough to target the payday loan sector without also looking at other forms of high-interest short-term borrowing such as overdrafts, logbook loans that are secured on cars and purchases of home goods on store credit.