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- Final Warning For Payday Lenders
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- Protocol Compliant Debt Management Plans Introduced
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- Blame Banks Not Claims Firms?
- Effectiveness Of OFT Addressed By National Audit Office
- First Step Finance Consumer Credit Licence Revoked
- The Problem With Excluding Recent Debts From Trust Deeds
Which?, the pro-consumer organisation, has today released information collected during a study of the payday loan industry. They have surveyed users of payday loans as well as reviewing the compliance of the websites used by a number of payday lenders to market their services. The results graphically illustrate how payday loans are compounding debt problems and therefore increasingly featuring amongst the creditor lists of protected trust deeds.
The findings presented by Which? confirm the suspicions of many debt and Scottish trust deed advisers, and contrast sharply with “research” recently released by a trade association representing some payday lenders. Payday loans are, for many people, quite simply a trap that can compound debt problems.
It was found that six out of ten people taking out payday loans were using them to pay for basic household expenditure. This is a typical feature of a downward debt spiral; so much earned income is consumed by debt repayments that insufficient cash remains to fund household essentials. There is therefore no option but to obtain further credit, unless of course someone reaches out for debt advice instead. Persons that are already heavily in debt may not be able to borrow from mainstream lenders any more and may therefore turn to less “picky” loan operators such as payday lenders.
All lenders must take steps to lend responsibly, so even if payday lenders are prepared to accept higher risks than our high street banks they should still confirm that someone has the capacity to repay a loan. Failing to do so can encourage the type of heavy debt that results in people using serious formal debt solutions such as trust deeds (and where less serious measures might have been used previosuly had further debt not been facilitated). Are payday lenders taking steps to lend responsibly? The Which? findings suggest that many are not.
Around a quarter of the payday lenders investigated carry out no credit checks. More than half of the people surveyed responded that they had only been asked about their salary, with no requirement to also divulge details of other commitments that might prevent them from repaying any new borrowing. Failing to take into account the ability of a potential client to repay a loan will inevitably encourage, further down the line, avoidable insolvencies in the form of sequestration and trust deeds.
To make the situation even worse, more than half of those that had borrowed were subsequently encouraged to borrow again. Nearly half of those that had used payday loans “rolled over” their loans (which is terminology indicating that the loan wasn’t repaid on the date expected in return for additional fees). Again we find a recipe for growing debt and debt problems.
We’ve often written about the need for further regulation of payday lenders. The negative effects of their activities are dumping people in greater levels of debt at a time when they’re already financially vulnerable. People that might have repaid their debts within a reasonable period of time, perhaps using the Scottish debt arrangement scheme, find that after using multiple payday loans their debts have escalated to a point at which a protected trust deed or sequestration is the only way out.
In this blog we really want to encourage any readers that are struggling with debt, and that are using payday loans to get by from month to month, to break the cycle. Seeking advice on debts at this point is essential as, without a miracle windfall, things will almost certainly only get worse unless the situation is tackled head-on. Residents of Scotland have a wide array of debt solutions available to them to address all types of different financial circumstances. Reaching out for advice on debt can be a difficult first step, but many people feel a palpable sense of relief having done so.Tags: payday loan