Payday loans becoming ‘most common debt problem’

Payday loans are becoming one of the most popular causes of debt for people in the UK.

Research by the Money Advice Trust has found that it had to deal with over 20,000 calls from people looking for help with payday loans in 2012, which represents a 94 per cent year-on-year increase.

Indeed, there has been a consistent pattern of consumers needing assistance to sort out their financial situation since the recession took hold. In 2007, there were only 465 calls to the National Debtline, but this figure had swelled to 10,301 by 2011. 

As a result of this, the trust wants to see the Office for Fair Trading (OFT) make use of the new powers it received last month (February 22nd) to suspend consumer credit licences. Under the terms of the policy, the OFT can act where there is an "urgent need to protect consumers from harm".

The body has already stated it will not hesitate to use the powers if it suspects that lenders are acting unscrupulously.

Joanna Elson, chief executive of the Money Advice Trust, said: "Payday loans have come from nowhere to be one of the most common debt problems people face.

"The rapid emergence of payday lending has caught regulators a little off guard. We have waited some time for real action to be taken to help prevent people falling into a serious debt spiral with these loans."

Ms Elson added she has heard of people who have up to 80 separate payday loans, which highlights the scale of the problem facing some. Instead of continually turning to unsecured lending, Britons would be better off taking out a debt management plan.

The informal debt solution will typically help consumers reduce their monthly outgoings, stave off any County Court Judgments and stop creditors from harassing individuals. Provided people stick to the terms of the arrangement, it will also offer them a direct path to becoming debt free.

By James Francis