Payday lenders face further regulation

By Lucy Bower

A new code of practice for payday lenders is being implemented today, although the code is voluntary and not all payday lenders are signed up to it.

The payday loan industry has grown considerably in recent years. Some critics of payday lenders (for example, Stella Creasy MP) argue that they are basically 'legal loan-sharks'.

Defenders of the payday loan industry say it offers a convenient way for consumers to access short-term loans when they need them.

However, the industry has come into criticism recently for its debt collection practices. With CPAs, or Continuous Payment Authorities, lenders can keep trying to withdraw money directly from a customer's bank account as soon as they default on repayment. This can leave people unable to pay their bills or buy essentials.

Citizens Advice today released figures demonstrating it has seen a worrying rise in the number of 'serious debt cases relating to payday loans' in the last four years.

Back in the first quarter of 2009/10, only 1% of people the charity helped with debt problems had at least one payday loan. This had risen to 4% by the first quarter of last year. In the first quarter of this year, 10% of the people it helped with debt had at least one payday loan. This reflects the growth in availability of payday loans in recent years.

A spokesperson for All About Money commented: "There are other ways of dealing with debt - and a further loan isn't likely to help if someone's struggling. It's important that people with debt problems seek advice about their situation before they go ahead and borrow any extra money."

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