Calls for help with payday loans have risen 42%
The number of people struggling with payday loan debt has rocketed by 42% in the past 12 months, new research has found.
Figures from debt charity StepChange revealed the number of people with payday loan debt jumped to 43,716 in the first six months of 2014, compared to just 30,762 for the same period last year.
In the first half of 2014, the charity helped people deal with more than £72 million worth of payday loan debt, compared to £51 million a year earlier – an increase of 41%.
In order to get a grip on the problem, the charity has called for a tougher total cost cap than the 100% of the value of the loan that has been proposed by the Financial Conduct Authority (FCA).
The cap would mean that borrowers would pay back no more than twice the original amount they borrowed.
But StepChange said that while the average size of a payday loan is £260, the average monthly income of a client it deals with is just £1,305, meaning borrowers would be forced to use a substantial part of their income if they reach the 100% cap.
StepChange chief executive Mike O'Connor said: "Today's figures show that the payday market all too often fails to treat customers fairly, especially those in financial difficulty.
"High-cost short-term credit is rarely the answer to financial difficulties. While, the FCA's proposed price cap is a crucial step forward, there is still much work to be done to ensure that payday loans can no longer plunge people into a cycle of unsustainable borrowing and entrenched financial hardship."
He recommended the FCA should also take action to improve overdrafts, logbook loans and home credit, areas in which "where consumers also suffer detriment", he said.
The new FCA rules on payday lending will come into affect from January next year.
Overall, StepChange helped more than 123,000 people in debt during the first six months of 2014.
Short-term cash loans designed to be borrowed mid-way through the month to tide the borrower over until they next get paid, whereupon the loan is settled. Generally used by people with bad credit ratings and/or no access to short-term credit such as an overdraft or credit card. Like logbook loans, this type of borrowing is hugely expensive: the average APR on payday loans is well over 1,000% and in some instances can be considerably more.