PayDay Loans Under Fire

Debt charities have called for a review of payday loan lenders, claiming that they need tighter security and more regulation.

Those working with the severely indebted have reported concerns that too many borrowers are looking for alternative methods of borrowing when traditional sources fail and claim that this worsens their debt situation.

Beccy Boden Wilks of debt charity National Debtline said: “If they can’t get another credit card balance transfer, they will start to look at other forms of borrowing, which could be payday loans or pawnbroking, which are quite expensive.”

Payday loans – sometimes known as instant loans - were traditionally available from specialist lending shops. A post-dated cheque was taken as security against the cash loan.

These days, most payday lenders work online or via call centres, taking money by debit card. They defend the claim that they only lend money to the vulnerable.

Whilst credit checks are not made for these types of loans – ranging from a typical £80 to £850 – the amount is only lent to those in employment with sufficient earnings to repay the capital plus fee.

The lenders defend their fees by pointing out that they take no security and are reliant on the borrower making the repayment on time.

Moneysupermarket.com has conducted research showing that these type of no-credit-check loans have grown in popularity by 55% since last September, making them fastest-growing area in lending today.

Meanwhile the Office of Fair Trading has pledged to look closer at the payday loans industry.