WIREDGOV

Charity criticises lack of challenge to payday loans

High street banks should offer personal micro-loans as a more responsible option for short term credit to stop people falling foul of unscrupulous payday lenders or turning to loan sharks for money, says Citizens Advice.

Writing in the Financial Times last week, Friday 26 April 2013, Citizens Advice Chief Executive Gillian Guy, who will also chair the British Bankers’ Association’s new consumer panel at the end of this month, welcomed a “responsible high street challenger to the payday lending market.”  She criticises high street banks for their “weakness at dealing with poorer families” and said that even the poorest need financial services.

The charity said banks should accept some responsibility for the growth of the payday loan market and have an opportunity to right past wrongs by offering an inventive, low-interest and responsible solution to the need for short term credit.

Citizens Advice has seen a ten-fold increase in payday loans over the last four years as people use them to make up a shortfall in income or to cope with unexpected expenses.

Evidence from across the Citizens Advice service reveals a range of problems with the current payday loans industry including:

• Excessive interest rates and charges.
• Lack of clarity on how much the loan will actually cost.
• Rolling over loans without permission.
• Pressure to take out more loans.
• Raiding bank accounts to collect debts with out any prior warning – often leaving people without money for food or bills.
• Irresponsible lending of loans to people who can’t afford to pay them back.

Citizens Advice believes the squeeze on living standards and dramatic changes to the benefit system will further compound the need for short term credit as households have to get by with less. The rise in food banks already exposes the income gap and access to emergency funds has been reduced with the Social Fund abolished earlier this month.

Citizens Advice Chief Executive Gillian Guy said: “Banks risk becoming the dinosaurs of financial services, outstripped by new lenders who are quick to meet the demand for immediate credit.

“Banks have turned their backs on some of the poorest people by shutting them out of mainstream banking, leaving them at the mercy of predatory payday lenders. They can step up to the plate by offering responsible short term loans that can be spread across a person’s bank account so they can pay an urgent bill and still feed their family without being sent into a spiral of debt.

“Anyone struggling with their finances can get free independent advice about money problems from their local Citizens Advice Bureau. We can help you manage your money and prioritise any debts you may have.”

Citizens Advice has used its extensive evidence to expose the practices of payday lenders and take action against the industry:

• In February Citizens Advice reported four payday lenders to the OFT and called for them to be immediately banned from trading.
• Citizens Advice is carrying out a year-long study which monitors the performance of the payday loan industry against its self-regulating charter.
• Last August Citizens Advice provided evidence on the payday loan industry to the OFT’s investigation which saw lender MCO Capital Limited stop trading in March 2013.

Notes to editors

1. The Citizens Advice service comprises a network of local bureaux, all of which are independent charities, 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 information in England and Wales see www.citizensadvice.org.uk
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. For online advice and information see www.adviceguide.org.uk
3. Citizens Advice Bureaux in England and Wales advised 2.1 million clients on 6.9 million problems from April 2011 to March 2012. For full 2011/2012 service statistics see our quarterly publication Advice trends
4. Out of 22 national charities, the Citizens Advice service is ranked by the general public as being the most helpful, approachable, professional, informative, effective / cost effective, reputable and accountable (nfpSynergy’s Brand Attributes survey, May 2010).
5. Most Citizens Advice service staff are trained volunteers, working at around 3,500 service outlets across England and Wales.