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Wednesday, 23 July 2014

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Couple hit with 19,400 per cent pay day loan interest rate charge

Advice workers in Cumbria are battling to help growing numbers of people swamped by debts owed to “pay day loan” firms.

Distraught woman photo
There has been a rise in people struggling with pay day loan debts

Citizen Advice Bureaux have seen an explosion of debt problems caused by the short-term loans, with interest rates as high as 19,000 per cent.

The Carlisle & Eden branch of the CAB has this year helped 130 people crippled by pay day loan debts – a rise of 240 per cent compared to last year.

The situation is the same in west Cumbria where Carol Graham, who manages Copeland’s CAB in Whitehaven, said her debt advice had noticed a dramatic rise in pay day loan debts.

In 2009, CAB advisers in Carlisle helped clients with nearly £6,000 of loans from three pay day lenders.

By this year, the number of pay day lenders operating in the area had rocketed to 28, who lent just under £60,500 to 130 clients. Some customers have been so strapped for cash they have had to choose between making repayments and paying for food or heating.

Of the situation in west Cumbria, Mrs Graham said: “One of the worrying things is that people are not always aware that if they go for a pay day loan it may impact on their ability to get a mortgage later on.

“This kind of debt has been increasing over the last few months.

“It’s a similar picture to what’s happening in Carlisle and elsewhere.”

The Carlisle & Eden CAB has released details of how just a few of their clients have been suffering because of snowballing payday loan debts.

They include:

  • A couple, in their 40s, with one child, who have worked all their life. Diagnosed with cancer, the wife was unable to work, so they took out a five-day pay day loan to “tide them over” a sticky patch. Unable to repay, they were hit by an interest rate of 19,400 per cent and now owe £4,000.
  • A man on a £35,000 salary, already with loans, took out one pay day loan, and another to pay off the first one. He now has four pay day loans outstanding and a £3,000 debt – more than his monthly pay.
  • A single parent and part-time agency worker, who took out a pay day loan when her hours were cut for three weeks. She now has other loans out and unable to work through stress.

Andy Auld, who manages the Carlisle & Eden District CAB, said all three clients may now seek a declaration of insolvency to draw a line under their debts.

He said: “We have found some people end up struggling to pay for their heating, or go without food.”

Four recognised UK credit associations have now launched a code of conduct designed to protect consumers from the worst excesses of irresponsible lenders.

With Christmas just days away, and the poor increasingly desperate for cash, the CAB has launched a campaign asking Cumbrians to help them monitor which firms are sticking to the code. Pay day lenders typically charge the equivalent of 1,410.3 per cent APR – equivalent to a £25 cost per £100 borrowed over one month. But many charge far higher rates.

Mr Auld added: “We strongly urge anyone experiencing difficulties with a pay day loan or thinking of taking one out to visit the bureau and get advice about alternatives.”

In recent years, CABs have urged people who need to lend to choose one of the county’s credit unions rather than doorstep lenders or pay day loan companies.

Richard Bailey, a development manager at Allerdale Credit Union, said lenders who allowed clients – who are often financially vulnerable – to repeatedly “roll over” debts, allowing them to escalate, were behaving unethically.

He added that credit unions offer far lower interest rates - typically 26 per cent and all customers are checked out to establish that they are capable of repaying the loan.

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