The last government took concerted action to deal with loan sharks – unlicensed money-lenders, operating outside the law. They provide loans on bad terms, at exorbitant interest rates, and illegally harass people if they get behind with their payments. For the last five years, enforcement teams in every region have been cracking down on these illegal activities.
However, in their place, we’ve now seen the rise of the lawful loan sharks. It’s sometimes called payday lending. In 2006, the payday loans industry was worth about £350,000 a year. By last year, that had dramatically increased to more than £2bn.
Daytime TV is now flooded with adverts, tempting vulnerable people to see how easy it is to take a loan, which they can repay on their next pay-day at interest rates in excess of 2000%.
Clearly, increasing unemployment, falling wages and benefit cuts are taking their toll on ordinary families. However unrealistically optimistic, people are falling into the trap of believing that they can have one of these loans just once, repay it and move on.
The reality is different. Nearly half the people taking out payday loans are doing it to pay off another debt – usually at a vastly lower interest rate. The Debt Advice Foundation reports that more than 40% of people who go to them for help have financial problems because of payday loans, or similar debt with high interest rates. The Citizens Advice Bureau reports that they have seen a four-fold increase the number of people seen with payday loan problems in just two years.
Last October, I called on the government to take urgent action to cap interest rates on loans. Bluntly, the whole business is just obscene. But, I’m sorry to say, the government has refused to act. I shall keep up the pressure.
However, there is some movement. Last week, the Office of Fair Trading announced that it will carry out spot-checks of 50 major lenders and that it would look into concerns that people are being given loans without the proper checks being carried out. In particular, it will investigate whether firms are targeting people unsuitable for credit and are rolling over loans so that the charges escalate and they become unaffordable.
I have some simple advice for people who might be tempted by a payday loan:
‘’Don’t do it. Don’t even think of doing it. If you’re struggling with debt, go to your local CAB now before you do anything else.’”