Payday loan providers to be rigorously scrutinised

30th January 2011

Payday loans are coming under increasing scrutiny amidst allegations that such lenders are exploiting the poor and financially vulnerable.

The interest rates on such loans often reach 3000%, which can exacerbate long-term debt problems for those enticed by the temporary financial relief they provide.

Evidence of this danger is being reported by trust deed companies in Scotland, who are increasingly finding their indebted clients have used payday loans as a last resort to hold their family finances together. Indeed, one payday loan company has been targeting indebted visitors to the trust deed forum at Trust-Deed.co.uk with links to their website. Clearly they consider those already concerned about debt to be fair game.

The market for payday loans has quadrupled in size over the past two years. 1.2 million Britons now take out such loans each year. The void created by the increasing unwillingness of banks to lend to their customers has been ruthlessly taken advantage of.

Westminster MPs from a variety of political parties have joined together to demand action from the government on this issue. Unlike other countries such as the USA and Canada, the UK does not currently restrict the terms of such loans.

Residents of Scotland have been advised to avoid high-cost credit if they have existing debts in place. Other options for lending such as credit unions should certainly be explored before such a desperate measure is taken. Another option may be the local banks and building societies that have been largely unaffected by the credit crunch. Airdrie Savings Bank this week reported that its lending actually rose by 24% last year to a record level; it is now looking to open new branches.

If debt is already a burden then any kind of further lending should be avoided. Seeking debt advice from a professional source, such as a trust deed provider or Money Adviser, will provide an understanding as to whether debt payments are sustainable and the range of options that are available if this isn’t the case.

For further advice from a trusted source, please scan the headings of articles on our Trust Deed Advice Forum and read those which you feel apply to you. You can also chat to other people who have been through, or are in the process of going through similar financial difficulties.

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