Weekly payday roundup: 7 days ended 14 dec 2012:
Debt advice experts say that as many has half a million Londoners may be poised to take out short term loans to finance their Christmas pending this year.
Insolvency trade body R3 says that 23 per cent of those living in London are likely to take out a payday loan in the coming six months. This is twice the average national rate, says R3, and the research has prompted longtime payday advance lending critic Labour MP Stella Creasy to call for more limitations to be placed on payday lenders.
The trade body that represents the interests of a majority of payday lenders, the Consumer Finance Association, has of course taken issue with Dr Creasy and R3’s research. Capping costs on payday loans is not an appropriate way to manage costs to borrowers, the CFA says, but then again doing so would cut into the profit margins of CFA members, so it’s not as if consumers can rely upon anything this organisation says when there’s an obvious conflict of interest at the forefront.
Dr Creasy says that the majority of other countries have payday loan caps as a matter of law, reducing the amount of debt people can actually get themselves into. Meanwhile, the MP for Walthamstow remarked that costs in the UK are so high that one out of every three instant cash loans by Brits are actually taken out in order to repay an existing loan.
Too many individuals are relying upon payday loans to pay for travel costs, rent, food, and other essentials, the Labour MP said, leading to people falling into a downward spiral of unsustainable debt. The CFA countered that regulating the industry too closely would essentially drive payday loan providers right out of the market, cutting back on opportunities for those in need of emergency lending who have already been barred from access to traditional credit.
A spokesman for the CFA, the body that represents many of the payday loan companies said: “We think that that would actually drive lenders out of the market and reduce the choice available to people who need this type of product.
Elisabeth Matthews owes more than £2,000 after taking out payday loans
“For many people, they aren’t able to use the banks or they choose not to use the banks, they don’t want to add a long-term debt to their credit card, they prefer this short, simple, low commitment project.”
In November, the government announced it would change the law to allow restrictions to be imposed on the interest rates charged for so-called “payday loans”.
Ministers will amend the Financial Services Bill to give the planned Financial Conduct Authority the power to limit charges.
Carl Packman, a personal debt journalist, said greater regulation needed to come sooner rather than later.
“These changes, though encouraging, are probably not going to be taking place until 2014.
“Families are getting themselves saddled with bad debt from payday lenders right now, so the government really needs to take action on this immediately,” he said.