Debt management firm sees 10-fold rise in clients with payday loans

A debt management firm says it’s seen a 10-fold increase in the number of clients coming to it who are struggling as a result of payday loans over the last four years.

Payday loans recently hit the headlines in the mortgage market after it was revealed that a number of lenders were rejecting applicants that had taken out a payday loan. Mortgage Strategy revealed in July this year that GE Money has previously was one of the lenders that will not consider applicants who have taken out apayday loan in the three months prior to them attempting to take out a mortgage.

But MoneyPlus Group says that the number of clients coming to it with payday loans has ballooned from 4.5 per cent of clients in 2008 to a whopping 44 per cent of clients 2012.

It also seen an increase in the number of payday loans that people have taken out.

Over that same period the average number of payday loans each client has taken out has leaped from one to over 4.5.

MoneyPlus director of insolvency Stephen Quinn says that people are taking out payday loans to delay the inevitable.

He says: “People are taking out not one payday loan but many payday loans, so they’re circulating their credit. They take one out the first loan, they can’t pay that back so they take out another the next month to pay back the first one.

“Of course the interest rates are quite high and so they’re ending up with six, seven or nine payday loans. What they’re doing there is delaying the inevitable, so instead of having £30,000 worth of debt they’ve got £40,000 or £45,000 worth of debt.”

However the Consumer Finance Association, one of four trade bodies that represent UK payday lenders, says that 71 per cent of people who take out a payday loan pay them back on time and the vast majority of customers do not have a problem.

CFA head of communications Richard Griffiths says: “Debt management firms’ experiences with payday loans are of a particular end of the scale. They see people with debt problems so you might expect them to have a different perspective to us on payday loans.”

But he says there is more work to be done when it comes to multiple loans. All of the CFA’s members do credit checks as part of their affordability assessment but he says other payday loans do not always show up.

He adds: “Part of the application process is asking if you have other debts but clearly consumers are not always going to tell you if they really want to borrow that money.
“Data sharing between payday lenders and credit reference agencies and the way the system works needs to be enhanced and those conversations have started.”