Are we entering a payday loans crisis?
The National Debtline – who provide free and independent debt advice – claim that the UK could be working their way to a payday loans crisis.
The helpline has revealed that over the last six months they’ve received calls from 9,500 payday loans customers who are struggling to pay off their debt. The calls are a 116 percent increase on the same time last year.
This is despite around 90 percent of lenders recently signing up to a new and improved code of practice which outlines the exact responsibilities for companies who provides payday loans.
The new guidelines state that lenders should be totally transparent in what they are offering the consumer and that interest charges should be frozen after a maximum period of 60 days if the credit is not repaid.
Furthermore, lenders are required to advise consumers on whether a payday loan is the ideal short-term solution for their financial difficulty. The idea is to give customers new clarity when contemplating how to deal with their cash flow problems.
Yet, Joanna Elson, the chief executive of Money Advice Trust, believes that the new codes of conduct are not enough.
“It is difficult to see where these changes to the voluntary codes of practice go beyond what is already required by the OFT (Office of Fair Trading),” said Elson.
Lenders like Ferratum are completely upfront about their charges and promise that no additional or hidden costs exist when taking out a short-term loan. This is part of the compliance of being a responsible lender.
The problems exist when customers are taking out payday loans and then failing to meet their initial payment date. The interest increases on the loan which eventually leaves the consumer in more debt than was originally foreseen.
However, these types of situations should not arise when dealing with responsible lenders because of the rigorous credit checks that take place. These snapshots will provide lenders with the relevant information needed to make a decision on whether an individual would be able to sufficiently pay back their debt.
While the National Debtline is predicting that the country is heading towards a payday loans crisis, the only way to avoid such a scenario is for individuals to be completely in control of their financial prospects and be certain that a short-term loan is beneficial.
The increased transparency of responsible lenders – such as Ferratum – will only go towards helping consumers make their decisions.