10 September 2008
Providers of payday loans are offering credit to consumers without carrying out adequate checks on their ability to repay, it has been claimed. An investigation by Channel 4 revealed that money was being lent to without evidence of income through wage slips or bank statements, leaving borrowers vulnerable to further debt problems. Payday loans are marketed as short-term solutions to financial emergencies. Lenders offer sums of up to £1,000 and demand repayment within 30 days, typically the maximum length of time a borrower would wait for their next pay cheque. But Channel 4 points out that interest rates on payday loans can be up to 600 per cent APR and that borrowers often find themselves having to reapply for credit each month in order to stay on top of their arrears. Speaking to the programme, Damon Gibbons from Debt on our Doorstep said: "Payday lenders make absolutely no checks as to whether or not the reason why people are taking out a payday loan is because it's a one-off, or whether they're actually in big financial problems and are needing to roll over month after month." Meanwhile, recent research by uSwitch.com revealed that the number of personal loans issued to borrowers has fallen by 39,338 each quarter over the past year.