A Which? survey has found that about one million households use high interest payday lenders every month to try to make ends meet and put food on the table.
These companies offer short-term loans at very high interest rates and are accused of taking advantage of Tory-led coalition austerity and benefit-cutting measures to turn millions into permanent debtors.
Consumer group Which? has called on the government to introduce tighter regulation, ahead of today’s summit on payday lenders.
A summit of payday lenders, regulators, charities and ministers is being hosted by Consumer Affairs Minister Jo Swinson in the wake of the Office of Fair Trading referring the £2bn bloodsucking industry to the Competition Commission last Thursday.
Which? executive director Richard Lloyd said payday loans are a ‘toxic market’.
Lloyd said: ‘We want new rules banning excessive charges, a restriction on the number of times a payday loan can roll over and clearer advertising to help people struggling with spiralling debt.’
The OFT said customers found it difficult to identify or compare the full cost of payday loans, and that there were barriers to switching between lenders when loans were rolled over.
The OFT said it was also concerned that competition was based on speed rather than cost and some of the business models of companies caused concern because they were ‘predicated on making loans which are unaffordable, leading to borrowers paying far more than expected through rollovers, additional interest and other charges’.
Lenders appeared to make 50% of their revenues from such practices, it added.
The OFT questioned the use of phrases by some companies such as ‘instant cash’, ‘loan guaranteed’ and ‘no questions asked’.
In many cases, individuals have struggled to repay and the compound interest of loan after loan has left them in a spiral of debt.
Commenting on Thursday’s decision by the OFT to refer the payday lending market to the Competition Commission, Lloyd said: ‘Payday lending is rife with poor practice yet people are increasingly turning to this very high cost credit to cover essentials or pay off existing debts. . .
‘People under financial pressure being given high cost loans in minutes without proper affordability checks is a recipe for disaster.
‘This referral doesn’t mean the OFT can now stand down. It needs to stay tough with lenders and continue to take early enforcement action against any company found to be lending irresponsibly.’
Frank Sweeney, the WRP secretary told News Line: ‘This is an industry of bloodsuckers, a product of Tory policies to pauperise workers for the benefit of bankers and money lenders of all kinds.
‘This process has now reached the point where millions have to get into unrepayable debt to put food on the table.
‘There is only one answer to this situation, and that is we must organise a socialist revolution.’
