Recent figures show the number of UK residents in debt to payday loan companies has rocketed from just 250 in 2009 to 3,614 in 2012. This drastic increase has prompted the Government into taking action and plans to cap the extortionate level of interest charged on payday loans are currently in place.
But with these stores continuing to open on Welsh high streets some are sceptical this interest cap is enough to protect the Welsh public from the pitfalls of payday loans.
Two pay day loan companies have opened recently within a few steps of one another in Cathays
It’s a cold winter afternoon in South Wales. A 24 year old woman is chattering frantically to a debts adviser in the Swansea branch of the Citizens Advice Bureau. The woman is panicking because after taking out a loan of £400 less than a month ago she now owes over £700 to four different payday loan companies and currently has only £8 in her bank account.
The woman, named simply as Sarah was recently made unemployed and homeless. In need, she turned to traditional means for financial support, including applying for an Employment Support Allowance, which was rejected.
With little money and no options Sarah turned to the friendly faces of payday loan companies for help, a decision she is now paying for.
Whilst Sarah’s story may be an extreme example of the consequences of the misuse of Payday loan companies you’d be wrong to think this is a rare occurrence. The reality of the situation is that more and more 18-24 year olds are relying on payday loan companies for financial aid.
According to R3, a financial aid company, more than one in four (26%) of 18-24 year olds are likely to seek a payday loan in the next six months, placing the group well above the national average across all ages of 11%. Consequently, 18-25 year olds also now make up the highest proportion of people currently in debt.
As the global recession continues and banks remain reluctant to lend questions need to be asked on whether the APR cap control will halt the growing epidemic of payday loan debt over the coming Christmas period.
SWANSEA ON THE WAR PATH
Someone who believes it won’t is Swansea Councillor Mitchell Theaker who is head of the newly formed Dangerous Debts taskforce speaking just before his new campaign to, “end legal loan sharking” gets underway.
“The cap on short term loan interest rates isn’t a solution to the problem. It is definitely a step in the right direction but it doesn’t stop these companies lending irresponsibly, meaning it won’t stop people getting into debt.” says Councillor Theaker.
Instead Mr Theaker and Swansea council are taking more drastic measures when it comes to dealing with the industry.
“With our new campaign we are declaring war on anyone that would seek to take financial advantage of some of the most deprived in our society.”
Mr Theaker continues, “It is our moral duty to protect and support the disadvantaged in our society and it is these people that payday loans companies are actively feeding off. Through our powers we are going to limit the ability of new stores to open and aim to prevent these companies from advertising with any organisation that we do business with.”
A large part of the new campaign is making sure people are aware of the alternatives to payday loans such as credit unions but the fact of the matter is some people will have no choice this Christmas.
“A large majority of people take out these loans to buy the bare essentials including food and petrol” sighs Mr Theaker, “Tell me how a cap on the APR will stop that? It might reduce the debt, but as long as these places are so easily accessible to everyone, the problem will remain across Wales.”
LEGITIMATE AND USEFUL
The view of these companies as legal loan sharks is juxtaposed with that of the most recent review of the industry by the Office of Fair Trading who stated in a press release in late 2010 that that service provided by payday loan companies is; “legitimate and useful, covering a gap in the market. In a number of respects, these markets work well in that they serve borrowers not catered for by mainstream suppliers.”
22 year old Cardiff resident Michael Wall agrees with this view, “I work a five day week and get paid on a monthly basis. I have used the short term lender company Wonga several times and I’ve never had a problem.
I think the planned cap on interest rates will help the problem of debts, obviously with lower APR people won’t find themselves in as much debt as quickly if they were to miss only one payment.
As long as you realise that on payday you are going to have less money for the coming month and are responsible I think the majority of these companies serve a purpose and getting rid of them entirely would be a big loss.”
Unfortunately distinguishing between responsible and irresponsible lenders is something payday loan companies don’t specialise in, and are willing to lend to anyone who asks.
For Sarah the cap has come to late, but a general change in attitude is what is needed to end the short term debt epidemic Wales and indeed the UK finds itself in or cases like Sarah’s will undoubtedly continue to emerge, albeit with perhaps slightly less money owed.