Over the last four years, the Payday Loan industry has more than doubled in size as hardship pushes many people to use loans which can charge interest rates of 2,000% or more. A recent debate in Parliament highlighted the problems that high cost credit was causing people in Salford.
The average amount owed nationally on payday loans has increased by £400 to £1,665 since 2011. The average owed by people in Worsley and Eccles South is even higher, at £1,673. Given that the average amount owed is more than the average monthly income of £1,298, it is easy to see how paying back the loans has become a big issue.
Many people struggling to manage their living costs end up borrowing money to pay a bill. When they cannot repay the original loan, they are offered a rollover loan and can end up owing many times more than the original sum borrowed.
People often sign up to repay amounts they cannot afford. They can then find that repayments taken from their bank accounts by the payday loan companies leave them with too little left to pay for rent and food.
Advertising for payday loans is nearing saturation levels, particularly on daytime television. Loan companies use celebrities and cartoon characters to make their products appealing. However, adverts are often unclear about the cost of borrowing or the impact of failing to repay a loan.
I am supporting a Private Members Bill put forward by a fellow Labour MP which aims to control the worst practices of the payday loan companies. This bill would give powers to the new Financial Conduct Authority to set limits on the amount of interest that can be charged for loans. It would also give powers to restrict the ability of lenders to grant multiple and rollover loans and put restrictions on advertising of payday loans.
Government Ministers have not supported the sensible measures in the High Cost Credit Bill so far. I challenge the Government to rethink this and act to provide greater safeguards for people who are vulnerable to these problems with payday loans.