Pay day loans are cash advances against the recipient’s next salary payment — a post-dated cheque or authorisation to take payment from the recipient’s bank account is provided as security. Typical APR can run from 2,000–3,000 per cent or more.
The report, Keeping the Plates Spinning, finds that since 2006 the pay day lending market has grown to have 1.2 million customers lending £1.2 billion last year. Those typically borrowing are under 35, living alone and with a relatively low household income.
Credit unions are recommended as part of a solution to prevent the convenience of pay day lending becoming a cycle of repeat borrowing and ballooning debts. The report states: “Credit unions provide a valuable source of affordable credit, but there are limits on their accessibility as they still operate on a relatively small scale in the UK.
“Nonetheless, credit union membership may be an option for consumers who are trying to avoid the possibility of future resort to pay day lending by saving. They would also be better placed for access to lower cost borrowing if the need arose subsequently.”
ABCUL Chief Executive Mark Lyonette, welcomed the Consumer Focus report: “While on a one-off basis, lending like this is not necessarily dangerous — where such lending becomes routine and loans are rolled over, debts can quickly mount up and become unmanageable. Credit unions offer a long-term solution to managing personal finances by striving to break the cycle of debt dependency and put people back in control of their financial position.”