Rise in the number of people struggling with payday loans
Easy access and the desire to obtain designer goods is contributing towards a payday loans culture and placing people in extreme financial difficulty – a Teesside University academic has warned.
New figures have revealed that the number of people struggling with payday loans has risen by 42% in the last year.
Dr Mark Davies, a Professor in the University’s School of Social Sciences, Business & Law, is leading a research project to find out more about the types of consumers who consider payday loans and the consequences it has on their lives.
Professor Davies has gathered detailed accounts from a number of third sector organisations and has held focus groups with people who have taken out payday loans in order to find out more about the market.
'Typical payday loans are between £300 and £500 but people often take out several loans at a time,” explained Professor Davies.
'Around 30% of consumers don’t pay these loans back on time and that is when the financial difficulties really start. They get harassed and penalised and take out additional loans to try and solve the problem.
'A lot of people who use payday loans could manage their finances better, but end up borrowing money out of desperation. From a consumer angle, it is the younger generation who live for today, fuelled by peer pressure, designer gear and the longing for celebrity status. But it is not just about being more disciplined and informative - many consumers are in low to moderate incomes so few have the kind of financial buffers or savings that would steady them when exposed to unexpected expenses that can loom around the corner. In desperation, rather than ignorance, they are lured by what is most easily accessible, from their mobile or the internet, with few questions asked.'
Payday loans are short term consumer loans for immediate cash, often secured by the borrower’s post-dated cheque. Interest rates can be as high as 4,000% APR – though lenders argue that they have to charge high interest rates as the money is borrowed over such a short period, as opposed to a typical bank loan which can be taken out over several years.
According to debt charity StepChange, payday loan hardship cases have risen 42%. It has dealt with 43,716 consumers in financial difficulty in the first half of 2014, compared with 30,762 in the same period last year and is calling for sterner action to protect consumers.
Professor Davies, whose research is designed to find out about the objectives of consumers as well as the impact payday loans have on their lives, is not surprised at the rise in people suffering financial difficulty and is also concerned about the health issues connected with money worries.
'There is definitely a relationship between health and debt,' explained Professor Davies.
'Financial worries cause depression and anxiety and I have examples of people going without food themselves in order to feed their children. A lot of people with money worries do end up in hospital and it becomes difficult to find out which came first – the ill health or the financial burden – did one cause the other?'
An interesting trend in Professor Davies’ research is that so far it is only women who have been prepared to talk about their experiences of payday loans.
He added: 'I am not saying that the majority of consumers are women, but they are the ones who are willing to talk about how payday lending has affected them. 'It could be that men are too ashamed and feel, even in this day and age, that they should be the ones going out and providing for their family.'
Despite tougher new regulations and increased scrutiny in recent years, the payday loans industry is still estimated to be worth £2.2 billion. There are 240 lenders operating from 1,238 locations across the UK.
If you have taken out payday loans and would be willing to talk anonymously about your experiences, please email Professor Mark Davies at map.davies@tees.ac.uk
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