Consumer: War on payday market is continuing

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Cash strapped households are still relying too much on payday lenders, but the tide may be turning.

STRUGGLING families are still as likely to use payday loans as they are loans from credit unions, despite a drive to steer them towards more credible financial alternatives.

A new report from R3, the insolvency trade body, has found that the same percentage of adults in Yorkshire say that they have taken out a payday loan in the last six months as those have taken a loan from a credit union in the same period.

However the number of people in the region using credit unions was ABOVE the national figure.

William Ballmann, chair of R3 in Yorkshire, said: “It is encouraging that in our region, the percentage of people turning to credit unions rather than payday loans is higher than across much of the UK, however, more could still be done to promote this an alternative solution for those struggling financially.

“Payday loans have become one of the default options for those trying to tide themselves over from one month to the next, but there need to be alternatives.

“While high-cost, short-term credit might be helpful in some circumstances, payday loans are not a long-term option.

“They only dig people struggling with debts into deeper holes.

“Credit unions’ challenge to payday loans is a welcome one, but policymakers must give serious attention to helping them boost and fulfil their potential.”

The survey also found that four percent of adults in the region say they are likely to take out a payday loan in the next six months,

The group most likely to say they have already taken out a payday loan recently are those aged 25-34.

Meanwhile, those most likely to say that they have taken out a loan from a credit union in the last six months are aged 35-44 years.

Mr Ballmann added: “While the appeal of payday loans may have dimmed, a significant chunk of British adults still feel that payday loans are their only option to make it from week-to-week or month-to-month.”

Leeds City Council has recently announced it is continuing its war the payday loan industry with the launch of a new website dedicated to luring people away from unscrupulous lenders, and signposting them to safer, better options.

The announcement came as it was revealed that the level of borrowing from payday lenders in the UK has shot up by 80 per cent in the last year.

Latest figures from the national debt charity Step Change also showed that the number of their clients coming for help after taking payday loans was 67,000 in 2013 compared with 36,000 in the previous year.

The estimated high cost lending market in Leeds alone is now worth £90m. It is estimated that if everyone used more affordable credit instead, this would give households an extra £60m to spend.

However the city is slowly starting to win its war with loan sharks, payday lenders and doorstep lenders.

Since a citywide campaign was launched last year, membership of the city’s credit unions has shot up to an unprecedented 27,000 people. Lending through the credit unions was up by 25 per cent last Christmas, and it is estimated that borrowers saved £650,000 by choosing this route.

Leeds council’s new website, the Money Information Centre (www.leedsmic.org.uk) signposts people to free independent, financial and debt advice and more affordable credit facilities. It builds on the ‘Take a Stand’ campaign which launched in 2013.

The Money Information Centre site will bring together all the alternatives in an easy to understand and accessible manner and provide signposting to independent money advice and information about benefits, debt, loans and savings, affordable credit and household budgeting. The campaign will provide support through many locations across the city including the council’s One Stop Centres, libraries and housing offices, as well as, of course, credit union outlets. The website is aimed primarily a people thinking of taking a payday loan or who need specific financial or debt advice, however it is open to all.

FAST LOANS FACTBOX

High cost lending in Leeds is worth £90m. Options like credit unions would give households an extra £60m to spend.

Membership of Leeds’s credit unions has shot up to 27,000, and was up 25 per cent last Christmas.

25-34 year olds are the group most likely to have taken out a payday loan recently. But 35-44 year-olds are most likely to have gone to a credit union.

Visit the Money Information Centre - www.leedsmic.org.uk

Dean Johnstone, chief executive of Minds Ahead and joint leader of the centre of excellence in Leeds.

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