In this guest post, Consumer Affairs Minister Jo Swinson explains how the government is working to clean up the payday loans industry and asks – what other alternatives are there to payday lenders?
We’re all aware that times are tough, and people are having to tighten their purse strings. I understand how people can feel when they’re struggling with money problems, but one of the worrying trends to come out of this period has been the rise in payday lending. According to a Which? survey, around one million households take out payday loans each month.
The harsh reality is that many people are taking out payday loans when they are not right for them, which is why the government and regulators are taking tough action to clean up the industry. I do think we have to delve into the root causes of these problems, which is why we want to hear your opinions on payday lending.
Why not turn to credit unions?
We know that one issue is definitely access to credit. People understandably get frustrated by banks refusing them loans or credit cards and they may well feel tempted to try payday loans, so we have to make sure that people have better options.
I have always emphasised that people struggling with money should get free debt advice before they even think of getting a loan. Payday lenders should not be the first port of call. I know from talking to people who work in Citizens Advice that once people pick up that phone and make that first call for help, they say it’s like a weight has been lifted from their mind. There is a lot of help out there, but what can people do if don’t want to go to a payday lender? As an answer I’d like to point to our efforts to set up more credit unions.
Credit unions are not-for-profit organisations that can lend money, and because these are owned by the people who save and borrow through them, they are more responsible and the benefits go both ways. The idea is that because everyone in the group is in it together, the community becomes closer and there is more trust in the loan arrangements.
That’s important – I’m sure whenever someone looks at a payday loan they must have some element of doubt or worry in their mind about getting involved with a payday lender. With credit unions they can rest assured that they are part of a trustworthy organisation.
Credit unions are a great alternative, and we are working to set up more by investing £38m so that communities everywhere have access to them.
Make payday lenders play fair
We also need to help people who might have already chosen to use a payday lender, to know what they’re getting into and where to get help if things go wrong. This is why I’m supporting Citizens Advice’s payday lending awareness month to make sure people know what lenders are and are not allowed to do. This video from Citizen’s Advice sets out what you can do if you have a problem with a payday lender:
We want to do as much as we can to help, and your views will inform our work to improve the payday loans industry. Only last week, fifteen payday lenders left the market in the face of scrutiny from the Office of Fair Trading as they couldn’t prove that their lending practices were up to scratch.
So, do you think payday lenders are really practising best behaviour as they say they are? Would you or have you turned to a credit union when money’s short?
If you have recently taken out a payday loan, please fill out this short survey before 14 August to help the government understand how payday lenders are complying with their customer charter and codes of practice.
Which? Conversation provides guest spots to external contributors. This is from Jo Swinson MP. All opinions expressed here are Jo’s own, not necessarily those of Which?.
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