A Sheffield woman found herself struggling in a ‘spiral of increasing debt’ after taking out a payday loan.
The story of an anonymous woman known only as ‘Susan’ was highlighted by Sheffield Central MP Paul Blomfield as Parliament held two debates on the future of payday lending regulation this week.
Mr Blomfield – who launched a campaign to ‘stop the rip-off’ of payday lenders last year, backed by The Star – told the House of Commons on Monday evening: “She has asked to be kept anonymous so let us call her Susan, and her case is all too typical.
“She was struggling to keep up with bills and, to make ends meet, she took out a payday loan to help tide her over but still found that she was short at the end of the month.
“By rolling over the initial loan and taking out new ones to pay off that debt, she found herself in a spiral of increasing debt, with three payday loans, costly default fees and mounting interest.”
Mr Blomfield was speaking as members debated proposals from the Financial Conduct Authority which aim to regulate the market.
He said there was ‘unanimity across the House’ that the FCA is moving in the right direction, but not going ‘far enough.’
New proposals on the ‘irresponsible’ advertising of payday loans would not have protected Susan, he added.
He added: “Once Susan had taken out her first payday loan, why was she encouraged to keep rolling it over?
“How could she have taken out two further payday loans when she was clearly having difficulty repaying the first one?
“The FCA’s proposal to limit the number of roll-overs to two is a step in the right direction, but the Select Committee is right to say that there should be a limit of one. Is the need to roll over more than once not a sign that the borrower is in trouble?”
The debate also heard that only five per cent of payday lenders gave customers information about how to cancel the continuous payment authority process – where money is withdrawn from bank accounts on a regular basis.
Mr Blomfield agreed with Edinburgh West MP Michael Crockart that the figure was ‘abysmal’.
The FCA is due to publish its proposals for pay-day lenders in February and will take over regulation in April.
Mr Blomfield, who introduced legislation on the matter as well as a charter to stop the payday loan rip-off last year, and other cross-party MPs are due to meet chief executive Martin Wheatley today to press for the FCA to introduce tough regulation.