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Payday lenders condemned for sentencing people to years-worth of expensive debt

11 June 2014

Citizens Advice has said the route to more competition in the payday loans market is for banks to offer responsible alternatives. Provisional findings from the Competition and Markets Authority has found payday loan customers could be paying £5 to £10 more per loan due to lack of competition.

Gillian Guy, Citizens Advice Chief Executive, said:

“People are paying over the odds for payday loans that often sentence customers to years-worth of expensive debt.  Borrowers are left with deep financial problems after what was supposed to be a quick fix turns into a long term debt nightmare. The findings from the Competition and Markets Authority shows the regulator has listened to the Citizens Advice clients who have endured appalling practices but the actions won’t entirely address the problems with competition.

“In six out of 10 of the payday loan cases reported to Citizens Advice, proper checks on whether people can actually pay back the loan have not been carried out.  Citizens Advice has also found that some credit brokers are posing as payday lenders.  This practice not only means people are being charged fees they don’t expect to pay but it also removes a consumer's ability to make an informed decision about who to borrow from.    

“As with any market, consumers need to have actual choice and the right information to decide which the best deal is for them, which includes details of any costs incurred if they struggle to repay.  A comparison website could help people find a suitable loan, but it would need to come with a strong health warning about the risks of payday lending and direct people to where they can get free independent debt advice.

“For consumers to have real choice in the payday loans market, they need more responsible short-term credit options not just the ability to choose between existing providers.  The time for high-street banks to enter in to the market and offer a responsible micro-loan is long overdue.

"This is only part of the picture of ensure a functioning short-term loans market. It's important the FCA uses its powers to rid the market of irresponsible lending and throw out firms that flout the rules”

In April this year, Citizens Advice released its latest evidence on payday loans which showed in 4 in 5 of the cases reported to the charity Citizens Advice people struggled to pay back the loan. It also found, of the 807 cases where people struggled to repay:

  • 86% did not have the interest or charges on their loan frozen;
  • 4 in 5 were not treated with sympathy;
  • a third were put under pressure to extend the loan;
  • 84% were not told the risks of extending the loan;
  • 9 in 10 said there weren’t any checks made when extending the loan;
  • Two thirds (64%) were not told about the cost of extending the loan;
  • 9 in 10 were not told about free debt advice.

Notes to editors:

  1. The Citizens Advice service comprises a network of local bureaux, all of which are independent charities, the Citizens Advice consumer service and national charity Citizens Advice. Together we help people resolve their money, legal and other problems by providing information and advice and by influencing policymakers. For more see the Citizens Advice website.
  2. The advice provided by the Citizens Advice service is free, independent, confidential, and impartial, and available to everyone regardless of race, gender, disability, sexual orientation, religion, age or nationality.
  3. To find your local bureau in England and Wales, visit citizensadvice.org.uk. You can also get advice online at adviceguide.org.uk
  4. You can get consumer advice from the Citizens Advice consumer service on 03454 04 05 06 or 03454 04 05 05 for Welsh language speakers
  5. Citizens Advice Bureaux in England and Wales advised 2.3 million clients on 5.4 million problems from October 2013 to September 2014. For full 2013/2014  service statistics see our quarterly publication Advice trends
  6. Citizens Advice service staff are supported by more than 21,000 trained volunteers, working at over 3,000 service outlets across England and Wales.