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CCCS Reports Troubling Statistics Regarding Payday Loans

by Jim ONeil on March 17, 2012

in Payday Loans News

Payday loans are designed to help consumers, not hurt them. Unfortunately, more people seem to be getting themselves into deeper financial trouble with these loans each year. According to the UK Consumer Credit Counseling Service (CCCS), there was a huge increase in the number of payday loan-related calls it received last year.

The combination of high loans APR and consumer inability to repay the financing on time seems to be creating a financially harmful result.

In 2010, CCCS received 7,841 calls from consumers regarding short-term, no credit check loans. This figure skyrocketed to 17,414 in 2011 but that is not the most concerning data. The CCCS reported experiencing a six-fold increase in customers who had payday loan debts.

Though this financing is relatively small, it seems to be making a large impact on consumer budgets. Rather than helping many consumers remain financially stable, it is pushing them into debt.

Payday lenders charge annual interest rates as high as 4,000 percent. If the loan is repaid within the initial term, the amount of interest paid is only a fraction of this. For various reasons, many consumers are finding themselves unable to repay this financing as agreed and must roll over the loan or take out another loan to repay the first one.

Debt begins to accumulate and before they know it, many consumers are in over their heads.

Last week, MPs on the Business, Innovation, and Skills Committee presented a report that criticized payday lenders and requested timely action by the government. Stricter lending rules were called for to prevent these lenders from “abusing” consumers considered the most vulnerable in UK society.

These consumers do not qualify for loans bank provided and are facing dire financial emergencies, making them easy targets for unscrupulous lenders.

According to CCCS, 13 percent of individuals contacting the organization during 2011 had payday lending-related issues. The 2009 figure was 2.6 percent and by 2010, it had more than doubled to 5.5 percent. The average payday lending debt the charity handled during 2011 was £1,267. CCCS stated that this relatively new industry is fraught with “accounts of malpractice” and it recommended additional scrutiny of the sector.

Though this financing meets the needs of some clients, the charity said, it called for reigning in as necessary and the creation of customer-oriented standards.

Payday lenders continue to defend the products they provide, saying that loans APR is a misleading figure for financing provided for only a few weeks. Last week, lenders supported the recommendation of the select committee that APRs be replaced by a figure representing total cost of credit.

A spokesperson for mega payday lender Wonga stated that not only is APR the wrong measure, many consumers find it confusing.

Reputable payday lenders state that consumers want to know their actual loan costs. Those like Wonga are requesting that other providers of no credit check loans offer transparent pricing upfront, eliminating consumer questions regarding interest and fees.

The CCCS will continue to provide debt advice to consumers with payday lending issues.

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