Payday loan sales come under fire

Saturday, Oct 11, 2008

Online "payday" loan firms, who lend money against next month's salary, are using increasingly aggressive marketing techiques, say debt advisors.

Many offer 'loyalty' rates or pay those who recommend friends and relatives.

Charities believe such techniques risk further exploiting vulnerable people for whom the loans may not be suitable.

But the British Cheque Cashers Association (BCCA) defended the industry, stressing it receives very few complaints from borrowers.

Payday loans typically involve lenders advancing cash to a customer, usually for under a month, either against a post-dated cheque or the individual's bank details, so that come payday the company can automatically recoup the money.

The annual percentage rate (APR) on these increasingly popular loans can work out at more than 2000%, although given the size of the sums involved, the actual cash cost of the interest is small.

Rising living costs and the lack of willingness by High Street banks to lend in the current economic climate are thought to lie behind the rise in loan applications. Figures out earlier in the year suggest a 55% increase over a six month period.

Debt advisors believe borrowers are also now falling prey to questionable marketing techniques, brought over to the UK from the USA, where payday loan companies have been driven out of business in a number of states either by an outright ban, or by the imposition of annual interest rate caps.

Source:: news.bbc.co.uk