‘Payday loan’ warning as millions struggle to make ends meet

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By a Newsnet reporter
 
Millions of people will turn to high-interest ‘payday loan’ companies over the next six months in order to see them through until their next pay day, according to insolvency experts.

By a Newsnet reporter
 
Millions of people will turn to high-interest ‘payday loan’ companies over the next six months in order to see them through until their next pay day, according to insolvency experts.
 
Insolvency trade body R3, claim that 3.5 million people will consider taking out such a loan and that according to research 60 per cent regret it and half find they are worse off.  Only 13 per cent believe their situation was improved.

Payday loans are small unsecured loans designed to help people get by until payday.  Traditional banks will not loan to them and some people find themselves falling into a spiral of debt.

Frances Coulson, R3 President commented: “Payday loans are not the best way to resolve debt struggles.  We know that many who take them out find them to be a negative experience, often escalating financial troubles.”

R3’s research also uncovered a new group of ‘zombie’ debtors who are only able to make interest payments on the debt and do not pay anything off of the debt itself.

The Consumer Credit Counselling Service insisted that payday loans should be considered only as a last resort.

A spokesman said: “If you do take one out, make sure you can pay in full and on time and never roll the loan over from one month to the next,”

“If you find that you can’t repay and have to roll the loan over, it is essential that you seek free advice from a debt charity as early as possible.”

It is now a £2 billion a year business in the UK.  Stricter regulations in the USA has meant that some companies have come over to the UK to trade.  New research shows that Scots are more likely than people in other parts of the UK to borrow for Christmas.

A parliamentary question tabled by an SNP MP has revealed that the number of consumer credit licences revoked annually by the UK regulator has more than doubled over recent years.

However SNP Work and Pensions spokesperson Dr Eilidh Whiteford MP said stronger regulation was still needed to protect consumers and crack-down on unscrupulous lenders.

Commenting Dr Whiteford said:

“It is clear, both from the insolvency sector warning and the doubling of consumer credit licences being revoked, that strong action is still needed to regulate the consumer credit industry and protect vulnerable individuals.

“This warning comes at a time of general economic uncertainty for many, and at a time of year when many households are struggling to make ends meet with the pressures of Christmas approaching.”

Dr Whiteford also called on the UK Government to reconsider its proposals to cut the availability and level of crisis loans which she claimed could drive more people towards high-interest lenders and illegal loan sharks.

Dr Whiteford added:

“The only winners from this cut by the Coalition Government will be loan sharks and high interest lenders.

“In the wake of this stark warning by the insolvency sector the UK Government must step back from its cruel plan to cut crisis loans.”