Britain’s biggest instant cash loan company agrees to roll-over restrictions

There has been a lot of debate in Britain and some other countries recently about the effect that short term loans companies are having on people getting into debt. Now it appears that Britain’s biggest short term loan company, Wonga has at least agree to limit the number of loans roll-overs to three in a move that has been introduced by the FLA – the Finance and Leasing Authority.

Payday loans are usually short term loans which are given out for limited periods to people who have urgent cash needs like rent or mortgage payments. Most companies charge comparatively high interest rates on the loans – anything up to 4,000% per annum and some of them do not ask for credit checks. The companies, which have been growing in number over the last two years have been criticized both for the high interest rates and the lack of credit checks, which it has been claimed by critics, leads some people even further into debt.

Wonga, which signed up for the new roll-over curb last Wednesday, charges up to 4,214 % for some of its loans. This means that if a person takes out a loan for one hundred pounds for a month would have to pay back about forty pounds at the end of the period. The new curb will prevent anybody being able to extend the loan more than three times.

Wonga is currently the only short term loans company which is a member of the FLA, which is the association that has brought in the restriction. Other short term loans companies belong to other credit associations or to none at all, but may soon have to follow suit.

Both the OFT and the BIS are having a long, hard look at the practices of short term lenders and may bring in compulsory restrictions on their activities.

Some of the criticism of instant cash loans companies, especially those offering no credit check loans is that they have been encouraging borrowers to roll over their loans month after month, getting progressively more into debt.

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