Shay Lettice, the eastern region chairman of insolvency body R3 and partner at Cambridge accountancy firm Peters Elworthy & Moore, said: “The OFT report comes to some pretty damning conclusions about the payday loan industry, revealing that half their revenue is earned from roll-over loans, rather than the ‘one-off’ loans they are supposed to be.
“There are also concerns over lenders failing to carry out proper affordability assessments in the rush to secure business over their competitors. The proposals for rapid action on compliance in 12 weeks, and the threat of a referral of payday loan companies to the Competition Commission, are welcome and necessary to improve the situation.
“The industry has boomed in recent years; R3’s research reveals that over 5 million GB adults say they are likely to seek a payday loan this year.
“If used in the right way, to fill a genuine one-off gap in finances, a payday loan does have a place. However they are increasingly being taken on as a debt solution instead of a temporary financial solution. R3’s own research revealed one in three borrowers couldn’t pay off the first payday loan so had to take out another one, which potentially causes individuals to spiral into serious debt problems.
“As the payday loan industry has grown, so have concerns about debt. Around three fifths (59%) of the population are currently worried about their debt according to R3’s research, and there has been a vast increase in the number of individuals seeking debt advice from insolvency practitioners and debt charities as a result of payday loan trouble.
“I would urge those considering a payday loan to be sure they can pay it back on time and in full and, if not, to consider all the options, from careful budgeting all the way to statutory debt solutions such as an IVA or bankruptcy. Above all, such individuals should seek professional advice rather than automatically taking another loan.”
More information about payday loans can be found at http://www.textloanlenders.com