Calls are mounting for rip-off pay day loans lenders to be called to account as UK personal debt hits £158bn, says debt management company IVA-Advice.co.

A report by the Centre for Labour and Social Studies has shown that up to £4bn of the nation’s £158 billion of personal debt comes from active or defaulted payday loans, with over a million people taking out a payday loan in 2012. The report entitled ‘Boom-time for legal loan sharks: How deregulation, market failure and a crisis in wages has led to the rise of payday lenders’ was written by the Centre’s credit market expert Carl Packman, who has charted the rise of payday loans of the industry from a turnover of £100 million in 2004 to its current value of £2-4bn today.

Mr Packman has found that the under 25s have become the age group most vulnerable to being preyed upon by loans companies – between March 2012 this age group had been the smallest group borrowing from payday loans lenders, yet just six months later in September 2012 they had become the largest. During this time the average loan rose from £200 to £335.

Mr Packman said: “Many of these loans are being taken out to purchase food and other essentials or pay bills – not the outcome of financial imprudence that some would have you believe. Workers are finding it increasingly difficult to top up their declining wages with mainstream credit and because of that personal debt is rising to severe levels. The very fact that people are having to borrow money for essentials, food, bills and housing, suggests an urgent need for government to act quickly on assessing the causes of such dangerous rises in personal debt, and what can be done to regulate the industry itself to make it more responsible.”

The report calls for the Government to take action against the payday loans lenders in a number of important ways to stop young people getting into even greater debt, including:

  • Ensuring debtors receive tailored debt advice
  • Imposing restrictions on payday lenders setting up shop on the high street
  • Capping the amount of credit a debtor can receive while payday loans are outstanding
  • Ending self-regulation for payday lenders

A spokesperson for debt management company IVA-Advice.cos said: “Of all the individuals who come to us wanting information about IVAs, payday loans are usually always in the mix of unsecured debts they have. “Obtaining credit through payday lenders is too easy. There have been reports of known gamblers being given two or three loans a day from the same payday loans lender despite the lender being aware they are going straight into betting shops to spend the money. The lenders say it is not their responsibility to ask what their clients intend to do with the money.

“However, other providers of normal loans are regulated by the Financial Services Authority and have a legal obligation to assess the financial situation of the loan applicant to ensure the loan amount is affordable for them. Why should payday lenders’ responsibilities to their clients be any different?”