Charity warns of payday loans crisis
Filed under: Debt
It doesn't expect the flood of calls to stop any time soon, and is calling for action to "stem the tide of payday loan problems". So what is going on, and what can you do if you have a payday loan headache?
Dangerous loansJoanna Elson, chief executive of the Money Advice Trust (which runs National Debtline) said: "We know from people calling into National Debtline that payday loans can have a dangerous tendency to make a bad situation significantly worse."
The problem is that people who are already struggling to take ends meet take out a payday loan as a short-term solution. They then cannot afford to repay it, have to roll it over, and find themselves faced with impossibly high interest charges added to the overall debt.
Many people only contact a debt charity when they have amassed significant debt and charges and may have rolled over the debt several times. And with payday loans proliferating, the charity expects the number of those running into trouble to continue to soar.
CodeAround 90% of the lenders recently signed up to an improved code of practice, promising things such as a charter explaining how loans work and the costs involved; increased transparency about loan repayment; more help for customers in financial difficulty by freezing charges and interest; and robust credit and affordability assessments to ensure loans are suitable for the customer's situation.
However, Elson is concerned that this doesn't go far enough. She says: "Payday loans companies are licensed by the OFT and therefore must comply with the OFT Irresponsible Lending Guidance, something which we have found they repeatedly fail to do. It is difficult to see where these changes to the voluntary codes of practice go beyond what is already required by the OFT."
She says that without a single binding code of practice, consumers will fall through the net and continue to be exploited. She said: "It is clear that far more must be done to stem the tide of payday loan problems faced by more and more people across the UK every day."
Sarah Brooks, Director of Financial Services at Consumer Focus agrees, and adds: "It is important that the OFT is sufficiently resourced to oversee this market as the threat of sanctions is the only way to improve behaviour."
What can you do?The advice from the experts is to think very carefully about all your options before turning to a Payday Loan. The Money Advice Trust says that the sooner you get advice about your debts, the easier it will be to deal with the situation. At the very least you should take advice before borrowing money in order to pay off debts.
It adds that you shouldn't have to pay for advice, because there are a number of free charities who can help including: Advice UK, Citizens Advice Bureaux, Consumer Credit Counselling Service , Money Advice Scotland, and Payplan - as well as National Debtline.
If you have a payday loan and are running into difficulties, she adds that your top priority should be to speak to a debt advice charity, who will help you prioritise your debts and will talk to lenders about a repayment schedule and halting punitive penalties and charges.
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