One million families are being forced to take out payday loans every month as they struggle to meet the rising cost of living, new research reveals today.
A poll for Which?, the consumer organisation, shows that nearly 400,000 of them use the high-cost loans to pay for essentials such as food and fuel, while 240,000 need the money to pay off existing credit. Half of the people who take out payday loans find they can’t cover the cost of repayments – which can attract interest rates of more than 5,000 per cent – which means they are forced to take out new credit and spiral further into debt.
The figures are revealed ahead of a summit tomorrow between ministers, lenders and consumer organisations designed to tackle the problem. But the Government is refusing to push for a cap on the total cost that a person can owe a firm, one of the key demands by Stella Creasy, the Labour MP who has gone to war with Wonga and other “legal loan sharks” in the £2bn sector.
Ministers insist that research shows a cap could actually punish people borrowing money because loan firms would simply increase their repayment charges, using the capped figure as a target. Despite her campaigning efforts, Ms Creasy has not been invited to the summit in Whitehall tomorrow, which is being hosted by Jo Swinson, the Consumer Affairs minister. There were suggestions that Ms Creasy’s vocal support for the cap, which is against the Government’s policy, lay behind her being excluded from the talks.
Last week George Osborne was accused of pushing people into the arms of Wonga and other payday lenders after he announced plans to force the unemployed to wait seven days before claiming benefits.
The poll by Which? found that 4 per cent of people, equivalent to one million households in the UK, said they had taken out a payday loan in the last month. Some 38 per cent of people who do so use them to pay for food and fuel, while 24 per cent repay existing payday loans. A total of 79 per cent of people, about 38.5 million adults, use some form of credit, while 44 per cent are worried about their household level of debt.
Seven in ten of payday loan users regret taking out credit in the past, while 49 per cent found they couldn’t meet the high cost of payments, and 28 per cent said that, while they don’t like being in debt, they saw it as a necessary part of their life.
Nine out of ten people believe payday loan companies should always include the cost of borrowing in advertising, while 87 per cent think the ads should make clear that it is possible to get free help from a debt advice organisation.
A spokesman for the debt charity StepChange said: “These findings are alarming and reflect what the charity is seeing. Credit should never be used to pay for essential living costs, and the fact that so many are using it this way points to a wider problem in the economy.
“This is particularly the case with high-cost credit and underlines why action is needed to tackle the problems in the payday loan industry.”
Richard Lloyd, executive director of Which?, said: “Payday lending is dogged by poor practice yet people are increasingly turning to this very high cost credit to cover essentials or pay off existing debts.
“A clear message has been sent to lenders to clean up their act, but the regulator must back this up by enforcing proper affordability checks and punishing lenders who flout the rules. We also want more action from the Government to tackle this toxic market.”
At tomorrow’s summit, Which? will ask for new rules banning excessive charges, a restriction on the number of times a payday loan can roll over, and clearer advertising to help people struggling with spiralling debt.
daily alternative | alternative news – A Million New Payday Loans Every Month