Call for new payday loan regulations

The government should do more to regulate payday loans and ensure they do not leave people with unmanageable debt, a mortgage consultant has argued.

Dominik Lipnicki, director of Your Mortgage Decisions, noted that a report by Shelter has shown nearly a million people have taken on such a loan to help pay the mortgage in the past year and he warned there needs to be a clampdown on such lenders and their practices.

He said: "More should be done to hold payday loan providers accountable if the loan was granted when it was obvious that the borrower was unlikely to ever fully repay the debt. Thus rolling up interest which is where payday loan companies really start making money."

Mr Lipnicki argued that the sector needs to be regulated as tightly as mortgages are, given the potential financial consequences of taking on such borrowing.

There is a clear lack of "underwriting" going on when payday loan decisions are made, since they happen so quickly and the transfer of funds is so swift, the expert added, commenting that this leaves those taking them out with little opportunity "to reflect on what they have decided to sign up to" before the deal is done.

Speaking on the BBC Wake up to Money podcast last month, consumer minister Ed Davey acknowledged that payday loans are a major problem for many and said the government is looking at options for curbing the activities of providers.

He noted that the possibility of capping them was considered by the previous government, although it concluded that this might push people towards illegal lenders if there was a cap imposed.

Mr Davey revealed research is being carried out into alternatives, such as limiting the overall cost of credit.

By Joe White