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Charity warns of ‘payday loans’ crisis in north Cumbria

A national debt charity says its staff in north Cumbria have witnessed a steep rise in the number of people struggling to pay off expensive ‘payday’ loans.

John Bailey photo
John Bailey

StepChange spoke out as one expert in Carlisle warned that the Government’s decision to axe crisis loans could fuel borrowing from short-term loan companies.

The News & Star recently found evidence of some charging interest rates of up to 19,000 per cent.

StepChange has seen a 109 per cent rise nationally in the number of people going to it for help with payday loans, with the number of people seeking help rising from 20,000 in 2011 to just over 36,000 last year.

In north Cumbria, the average debt of those seeking help last year stood at £13,717. Just under 350 people turned to the charity locally for help, up from 293 in 2011.

Disturbingly, the average payday loan debt of the charity’s clients last year was at £1,657, yet the average monthly income was £1,320.

A spokesman for the charity said: “The average person from [north and west Cumbria] seeking our help has only £6 left to repay their debts after paying for essential living costs.”

The figures did not surprise Andy Auld, who manages the Carlisle and Eden Citizens Advice Bureaux.

“It’s not unusual to find in some cases that as soon as a person’s income comes into the bank they’re handing the full whack over to pay off a payday loan,” said Mr Auld.

“Unfortunately, the situation is likely to get worse because crisis loans ceased to exist from the end of March as part of the welfare system reforms.

“Hopefully, people will go to credit unions, but if they are desperate they may turn to these companies.

“Some people will do whatever it takes to get the money they need at that time.

“These companies know that and their marketing strategy is aimed at people who are vulnerable and struggling.”

A CAB survey between November and March suggested that many payday loan companies are flouting the industry’s own guidelines for working ethically.

Nearly 1,300 people responded, revealing that:

  • Only 35 per cent of customers were asked about their financial circumstances to see if they could afford the loan;
  • Just 8 per cent were told about the availability of free debt advice;
  • 82 per cent did not feel the lender had dealt with them sympathetically.

Mr Auld said the charity’s bureaux in Carlisle and Penrith see people struggling with payday loans every day.

He added: “We expect the number to grow because since the welfare changes many people will feel they have nowhere else to go. ”

John Bailey, from Allerdale Credit Union, has seen evidence of what appears to be a “massive increase” in locals taking out payday loans.

He said: “As part of our assessment, we check three months of bank statements, and every month we’re seeing new company names.

“It’s not just [payday loan company] Wonga. People are going from one company to another, and then another. The basic premise of these companies isn’t a bad idea: you borrow £35 to stop yourself getting overdrawn and incurring bank charges, and pay it back within two weeks.

“You might pay £35 and you’ve avoided the bank charges. It’s when you start rolling over the debt.

“It can become hugely expensive. The legislation needs to be tighter.”

StepChange said that last year 42 percent of its clients under 25 had payday loan debts, almost double the figure from 2011.

In one case a borrower had eight loans with one lender, totalling £9,000. His mother made payments of £50, and the lender then took £6,000 from her credit card without permission.

Interest and charges continued to be added until the total debt reached £15,000 and the client was forced to declare bankruptcy.

StepChange director of external affairs Delroy Cornaldi said: “Lenders and their trade bodies must now show they are committed to reform and the enforcement of their codes of practice.”

Have your say

The problem is we live in the i want it now society what happened to the days of saving up for something. I was in the job centre a while back and the ammount of people with Iphones and Ipads was quite shocking for a load of people without jobs. It used to take 3 months to get a loan which is how it should be. How many of these people who use the pay day loans have Sky TV fancy phones flat screen TVs cars etc.

Posted by Alan on 16 May 2013 at 12:56

Some people are spouting off without thinking of the facts.
I ask you all to go to I defy anyone to show me a more clear and transparent financial product on the Internet. The information is exceptionally clear.

I have bought many financial products in my life, but never before have I seen one so well presented.

The slider is genius and extremely well informed. Their is no hidden stings in the tail it is crystal clear the terms and conditions.

You move the slider along. You decide what you want to borrow, you decide over the length of time.

It tells you your monthly payment, it tells you your end total, it tells you your interest paid.

To the person who said 'why dont they go to a bank?' It just shows how out of touch you are. If you have a history of bad credit (which wonga users all will) there is little to no chance that you will pass any credit check.

In my life I have made an effort to pay my bills on time, and avoid criminal convictions. This means banks and building societies are quite keen to allow me to borrow from them for rates at around 3% .

One missed payment, that goes up to six, a petty conviction and a iva, it shoots up to 20%. Add a CCJ and you can no longer get credit because you are an awful risk and unlikely to pay it back, hence absurd interest rates.

Posted by Jim on 15 May 2013 at 14:23

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