New data from StepChange Debt Charity shows that in the last year there has been a staggering rise in the number of people seeking its help with payday loans.
From 2011 to 2012 the charity saw a 109 percent increase in the number of its clients with payday loans. In the same period the average amount owed increased by £390.
The charity is also deeply concerned by the evidence it sees of widespread malpractice across the payday lending sector.
The data shows that the average payday loan debt of the charity’s clients now exceeds their monthly net income, highlighting the profoundly negative impact payday loans can have on people’s finances and prompting questions as to whether payday loan companies are lending responsibly.
In 2012, the charity helped 36,413 people with payday loan debts, almost 20,000 more than in 2011. While the average payday loan debt of those seeking help from StepChange Debt Charity reached £1,657, up from £1,267 in the previous year.
The average monthly income of a client with payday loans is £1,320 per month, but the average payday loan debt is £1,657. Clients are being left in a position where monthly repayments would leave them with no money for living expenses and push them further into a spiral of indebtedness.
StepChange Debt Charity believes that this is clear evidence that loans are being made to people who are unable to afford to repay, and forces many people into an unsustainable cycle of dependency on payday loans. In one instance the charity were contacted by a couple with 36 payday loans between them.
Last year, 74 percent of those people seeking help with payday loans had a net annual income of less than £20,000. Last year 42 percent of clients aged under 25 had payday loan debts, up from 25 percent in 2011.
Payday lenders were the biggest source of complaints made to the charity, despite the fact that only 19 percent of clients have payday loans.
In one case a borrower contacted the charity having taken out eight separate loans with one lender totalling £9,000. His mother then attempted to help by making payments of £50, the lender then proceeded to take £6,000 from her credit card without permission. Interest and charges continued to be added until the total debt reached £15,000 and the client was forced to declare bankruptcy.
StepChange Debt Charity’s director of external affairs Delroy Cornaldi said: “These findings are yet more evidence of the scourge of payday loans. With household finances increasingly under extreme pressure and access credit far less available, many face the unenviable choice of using payday loans simply to make ends meet.
“While recent actions by the Office of Fair Trading (OFT), including the revocation of a lender’s licence and the proposed referral of the industry to the Competition Commission, are welcome news for consumers, there is still widespread problems across the payday loan sector.
“The lenders and their trade bodies must now show they are committed to reform and the enforcement of their codes of practice, and the charity will work with the industry to improve practice. Otherwise regulators will have little choice but to take prompt and serious action to protect consumers.”
As part of its on-going commitment to provide consumers with comprehensive debt help and advice, the charity has launched a new section on its website dedicated to payday loans. It contains information about where to get help with payday loan debt, a brand new guide, the latest statistics, a shareable video, suggestions for loan alternatives, and the chance for consumers to submit their own payday loan experiences. The new website section can be found at www.stepchange.org/payday-loans