In a recent report, MPs referred to Britain as the “wild west” for payday lenders. These politicians claim that the high loans APR has caused millions of Brits to fall further into debt. Many residents are facing the loss of their homes, the MPs said, and action must be taken.
These no credit check loans provide a small sum of money over the short-term.
Based on the description, these loans do not sound harmful in and of themselves. If they are repaid within the initial term, they usually are not. Financial problems stem from payday loans being rolled over rather than repaid. APRs as high as 16,000 percent make this an expensive practice that leads some people into financial ruin.
This rate is not outrageous for a loan repaid in few weeks to a month. However, if the loan is rolled over several times, interest charges may exceed the principal.
The Business, Innovation, and Skills Committee reported that in Britain, there has been a “rapid proliferation” of payday lenders. While speaking to the MPs serving on the committee, a personal finance expert called Britain “the wild west for payday lenders,” adding that these companies view the country as “a crock of gold at the end of the rainbow.” Though many providers of no credit check loans are reputable and do not take this point of view, there are some that do.
Committee chairman and Labor MP Adrian Bailey recently said the industry was not sufficiently regulated. He and the other MPs on the committee heard numerous stories of the negative impact this financing has had on Brits. Payday lender Payplan managing director John Fairhurst claims to have seen some cases where a person had more than 20 payday loans at one time.
He informed the MPS that the typical deficit for customers of his company is approximately £800 per month. Customers who repeatedly use a short-term loan to cover the shortage should not have access to credit for this purpose.
The committee report explains that the payday lending industry has grown rapidly during recent years. There were 300,000 people using payday loans in 2006, 1.2 million in 2009, and 1.9 million by 2010. Many Brits are attempting to get by on limited funds, with 3.5 million of them considering using a payday loan during the next six months, according to R3, an insolvency trade body.
Research conducted by the committee revealed that 60 percent of payday lending customers regretted their decision to take a loan. Money Advice Trust, a British debt advisory firm, reported receiving 200 payday-lending related calls per month during 2011.
According to the report, the firm now receives more than 1,000 of these calls each month.
Mr. Bailey stated that during difficult financial times like the present, more Brits are using payday loans to get by financially. More are also turning to consumer debt management services. These two trends make it important to increase regulation of the industry, he said.
The Office of Fair Trading is responsible for this regulation and is currently investigating the market.