The Co-operative calls for payday lending reforms
The Co-operative is urging MPs to accept a strengthened Financial Services Bill that will give powers to the new Financial Conduct Authority (FCA) to protect vulnerable customers and to curb the activity of rogue lenders.
The Financial Services Bill enters its final stages in the House of Commons on Monday following Lords’ amendments which – if accepted – would include charging the FCA with tackling issues around payday lenders in 2014.
New research* from The Co-operative Group's online electrical business highlights how one in four workers struggles to live within their means and resorts to payday lending services to fund purchases.
In addition, almost half of all part-time workers who participated in the study by The Co-operative Electrical admitted to needing to borrow cash short-term to pay for the essential household appliances and the latest gadgets. One in three said they would run into debt this Christmas to pay for festive purchases.
James Holland, Managing Director of The Co-operative Electrical, said: "Our research reveals a worrying and growing trend of people who are willing to take out short-term loans to get by but in the knowledge that they will struggle to repay money borrowed.
“We understand that it can be difficult to make ends meet, particularly at Christmas, and it is especially concerning to see payday lenders capitalising on this trend. We believe that something needs to be done urgently to address the excessive APR rates and the lack of robust financial checks.”
Robin Taylor, Head of Banking for The Co-operative Bank said: “As a responsible lender, we believe that a clean-up of the payday loans sector is long overdue. Payday lenders target the most vulnerable in society and make profits by encouraging people to spend more than they can afford. Today’s research from The Co-operative Electrical highlights more than ever why action to address this needs to be taken now.”
The research shows that one in eight workers would use a payday lender to pay for electrical goods and, of them, one in seven workers admitted to taking longer than a month to repay the payday loan - advertised rates show that borrowing £250 for 30 days could cost £81.10 in charges which equates to a representative APR of 4214 percent**. A delay of ten days would incur an extra 18 percent in charges on the original loan amount - £25.20 in interest plus a £20 missed payment fee. Those aged 25 to 34 years-old were the most likely to borrow money from a payday lender.
In addition, a recent report has highlighted the costs of buying from high street weekly payment stores***, which shows that as a consequence of the interest rates charged a £562 oven would turn in to a £1,433 purchase over the course of three years.
James Holland added: "Christmas can be financially difficult for many families, but there is a danger that people are being lent money when they are not in a situation to repay it. In addition the speed of access to finance from payday lenders, while being a positive, can also mean that people make a poor financial decision which is not in their best interests just because they get a quick decision."
Robin Taylor concluded: “If you are worried about your finances help exists so don’t be afraid to ask for it. Before you take out any kind of financial product, the best thing to do is to speak to your bank directly or seek some guidance from an independent body such as the Money Advice Service.”
* The Co-operative Electrical questioned 2,000 online shoppers via a One Poll survey
** Based on an online quote from Wonga to borrow £250 and repay the amount after 30 days, which totals £331.10.