Households ‘will continue to turn to payday lenders despite Wonga’s collapse’ | Payday loans

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British households will continue to seek payday lenders despite the collapse of Wongaactivists warned, as tough economic conditions force people into high-cost debt.

Wonga came forward to management this week after a flood of claims for compensation. The company is estimated to have 200,000 clients who still owe more than £ 400 million in short-term loans who are told to continue to make repayments.

Although one of the top short-term lenders has disappeared from the market, a leading debt charity believes that more than a million people still need fast loans with high interest rates. Activists say government benefit cuts and austerity, slow wage increases, unsafe work and rising cost of living mean households will face increasing financial pressure in the future.

Peter Tutton, head of policy at debt charity StepChange, said the payday loan market was not “finished and dusted off” in the wake of Wonga’s collapse. “There is a constant flow of people who have to use high-cost credits for essentials.”

According to StepChange estimates, around one in seven people in Britain borrowed money to meet a family need last year, and around 1.4 million turned to high-cost loans. StepChange said the average payday loan debt among its clients last year was about £ 1,519. Payday lenders that are still in operation include Sunny Loans and QuickQuid.

Damon Gibbons, director of the Center for Responsible Credit, a campaign group, said: “[The collapse of Wonga] It is certainly not the end of the UK’s debt problems. The pressures on households remain the same, if they do not get worse all the time; no end in sight yet. “

Consumer debt

the Bank of england has become increasingly concerned about the rapid rise in consumer borrowing to levels never seen before since the financial crisis, increasing to three times the annual growth rate of wages. Britain’s accumulation of debt from credit card loans, personal loans and car financing reached a record £ 213 billion last month. The Bank does not separately track payday loan growth, suggesting that consumer debt figures are conservative.

Official figures released this summer showed that British households spent around £ 900 more on average than they received in income last year, pushing their finances into deficit. for the first time since the 1980s when access to credit card loans skyrocketed.

Economists blame benefit cuts, mediocre wages and higher levels of inflation since the EU referendum two years ago, after the rapid devaluation of the pound raised the cost of importing goods to Britain.

While there are fears about mounting debt problems fueled by some high-cost providers that may charge more than triple the average quoted rates, credit can provide a valuable lifeline. The Money Advice Service estimates that four in 10 UK working-age adults have less than £ 100 in a formal savings account, warning that consumers would still need to borrow to cope with daily emergencies despite the collapse of Wonga.

Young people, women and people living outside London and the South East are often among the most vulnerable. According to the Office of National Statistics, nearly half of 16-24 year olds surveyed between July 2016 and December 2017 said they would not be able to make ends meet for more than a month if they lost their income.

Lucie Russell of Barrow Cadbury, who is leading the charity fair by designing a campaign pushing for more ethical alternatives to payday lenders, said: “Debt is becoming a bigger and bigger problem. People do not have enough money and we are talking about millions of people living in poverty ”.

Payday lenders have gradually declined in importance after the The Financial Conduct Authority imposed a cap on the costs and fees they could charge, so that borrowers never pay more in interest and fees than the amount they initially borrowed. The cap contributed to Wonga’s collapse, although it also faced a large number of complaints from consumers about its credit practices.

Activists urge the city’s watchdog to extend the limit to other forms of borrowing, such as credit cards and overdrafts. Labor has made the move a policy should it come to power. While there is fear that illegal loan sharks will break in, new lenders have already begun to exploit the gap in the market left by Wonga’s decline. according to Labor MP Stella Creasy.

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