Tenants warned on payday loans as complaints rise
Tenants have been warned to seek alternatives to payday loans as a consumer watchdog announced an investigation into short-term lending.
Housing association LHA-ASRA has called on its residents to look toward credit unions if they need help with their finances.
The Office of Fair Trading announced it was investigating payday loan companies this week after complaints about lenders doubled.
The OFT released the data in the business, innovation and skills select committee hearing into debt management on Tuesday.
Vivienne Dews, executive director, and David Fisher, director-credit group, both at the OFT, told MPs that complaints about payday loan companies to Consumer Direct had gone from 700 in 2010 to 1,535 in the first 11 months of 2011.
The select committee was told that the main areas of concern were rollover of loans, irresponsible advertising and sales practices, targeting potentially vulnerable consumers and the treatment of customers in arrears.
The number of payday loan borrowers has grown from 300,000 in 2006 to 1.2 million in 2009.
In a statement submitted to the committee, the OFT said: ‘In light of our significant concerns about the market, we are tightening our approach to the scrutiny of new applications and renewals for the sector, alongside a programme of investigatory and enforcement action.’
MPs were told that the OFT had already taken action against two payday loan lenders and that it was launching a ‘review of compliance with the irresponsible lending guidance in the payday lending market in the new year’.
Angela Wade, financial inclusion officer of LHA-ASRA, said: ‘We find that many of our customers manage their finances on a day-to-day basis, so when Christmas comes around they can find themselves short of money.
‘When this is the case they seek quick-access funds. Due to persuasive advertising campaigns, customers see payday loans as an easy and credible way to borrow.
‘Payday loans with extraordinarily high rates of interest can see customers spiral into debt and struggle to pay their rent. This has an adverse affect on our business and the services we offer.
‘We communicate with customers throughout the year to offer advice and warn of the pitfalls when dealing with legal loan sharks. We recommend credit unions as an alternative, safe and much cheaper form of borrowing.’