In relation to the various points highlighted by R3’s Personal Debt Snapshot (November 2012), Russell Hamblin-Boone, Chief Executive of the Consumer Finance Association said:
Growing demand for payday loans
“The growing demand highlighted by this report is largely down to the fact that, in an uncertain economy, consumers are increasingly choosing payday loans over mainstream credit options because the short timescale for repayment is lower risk than an open-ended overdraft or revolving credit facility, such as a credit card. This is especially true of the young, who are used to instant transactions online, have only ever experienced limited credit options during the post-credit crunch era and are dealing with uncertain employment prospects. For them, a payday loan suits their needs exactly.”
Prioritising debt above food and ‘essentials’
“We are naturally concerned by the report’s findings that customers are prioritising payday payments over food. Our members are committed to lending responsibly and to delivering significant new protections for consumers through the new Good Practice Customer Charter. Clear explanations, robust affordability assessments and help for any customers in financial difficulty are the bedrock of the Charter, which comes into force on 26th November.
“It is important to highlight that the vast majority of customers are extremely satisfied with their payday experience. 71 per cent of customers repay their loans on time1 and the remainder only roll over their loan, on average, twice. In addition, 56 per cent say that using payday loans has prevented a one-off financial difficulty from becoming a wider financial crisis. More than half (54 per cent) of payday loan users feel that their loans make it easier to pay bills on time.
“A 2012 YouGov survey of 300 users of payday loans showed that 93 per cent are satisfied with their experience, so it is clear that payday loans from responsible lenders are beneficial to the consumers that use them.”
Payday loans are burdening the young with debt
“The risk of becoming trapped in long-term debt is greater with lower APR mainstream products, such as overdrafts, loans and, in particular, credit cards, than it is with payday loans. This is borne out by the fact that payday loans make up a tiny proportion of overall consumer debt; just £1.20 of every £100 of problem debt.”
Greater regulation and rooting out bad practice
“If consumers borrow from a lender that has signed up to the new Good Practice Customer Charter, which comes into force on 26th November, they can take out payday loans with confidence.
“With greater transparency on both the cost of the loan and how it works; affordability assessments before each new loan and rollover; and help for customers in financial difficulty, including freezing interest and charges, we have already implemented several of the measures R3 is calling for. We have also capped the number of rollovers and are signposting customers to free debt advice. We are actively participating in the Government research into rate caps and discussing data sharing with credit reference agencies. This is all on top of the statutory regulation, which governs all consumer credit providers. Responsible payday lenders, including all CFA members, are already making great strides towards higher standards and providing customer protections that lesser payday lenders are not prepared to consider, let alone deliver.”
 Figures were taken from the report entitled ‘Credit and low-income consumers: a demand-side perspective on the issues for consumer protection’ which is available here. The research, which was carried out by Policis and Liverpool John Moores University on behalf of Friends Provident Foundation, was undertaken with a nationally representative sample of 1,511 consumers in the lowest 50 per cent of household incomes, aged 18-65.