Borrowing money to tide you over until payday may seem like a good idea but a short-term solution can cause serious damage to your long-term finances.
Lincoln and District Citizens Advice Bureau is concerned about the number of debts cases it has seen related to payday loans, with a ten-fold increase nationally in the number of clients falling foul of lenders’ irresponsible and unscrupulous practices over the last four years.
Hidden charges, exorbitant interest rates and extended or roll-over loans can mean a small debt spirals out of control and CAB is worried the problem will get worse as people feel the squeeze in our stretched economy. It is campaigning for stricter controls through its Hold Payday Lenders to Account national survey, but it needs people who have experience of payday loans to take part.
The Consumer Finance Authority (CFA) represents the industry and introduced a new code of practice last year. It claims members have already improved how they operate, but initial results from the CAB survey indicate the code does not go far enough.
Only a third of respondents were asked if they could afford a loan while 75% said they struggled to repay the debt. Of the latter, only 18% felt they had been dealt with sympathetically and only 16% were offered a freeze on the interest.
The survey found that rollover loans were being offered before the first loan period was over, and one person had 13 rollover loans.
The CFA itself acknowledges that at least 100 payday lenders are not members and operate outside the code. Evidence gathered through the survey could lead to more biting legislation.
The more evidence we have, the more effective we can be in ensuring fair and responsible practices.
In the meantime, CAB strongly urges people who already experiencing difficulties with payday loans or who are thinking about getting one to visit the Adviceguide website or Lincoln CAB for service information. CAB can offer advice on alternative borrowing, what debts to prioritise and your right to stop lenders taking money from your bank account, as well as negotiating an affordable payment plan on your behalf.