Sheffield’s payday loan scandal

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A bid to ‘stop the rip-off’ of payday money lenders which leave Sheffield’s most vulnerable people drowning in debt is being spearheaded by a city MP.

The Star is backing Paul Blomfield’s Private Members Bill to regulate the companies behind loans which have left residents struggling to cope – and even facing eviction in extreme cases.

There has been a recent boom in lenders – which can charge a representative APR of more than 5,000 per cent for instant cash – and loan sharks in Sheffield according to a report into the city’s health and wellbeing.

And it was announced yesterday that The Office of Fair Trading has ordered a review of the payday loans market by the Competition Commission.

Mr Blomfield, Labour MP for Sheffield Central, who won a parliamentary ballot for the chance to introduce a bill of their choice, said: “Pay-day money lenders are making millions from extortionate loans to some of the most vulnerable in Sheffield and across the country.

“It is a widespread concern and I have heard some really appalling stories about how pay-day lenders operate, not just the extortionate interest rates they charge.

“One young man from Walkley told me about getting a text one night from a company which said something along the lines of ‘Not having a good night? Follow this link and we’ll out £50 in your bank account in the next 30 minutes.

“It’s targeting a demographic, such as young people who are out at the time and running a bit short of cash towards the end of the evening.

“Basically they are targeting desperate people, people in real hardship whose money doesn’t last the month and just need to top up until pay day.”

Sheffield Wednesday turned down a ‘lucrative’ sponsorship offer from a payday lender last year, after the club said the lender’s business model ‘did not sit comfortably with the community focused ethos of the club’.

Mr Blomfield’s High Cost Credit Bill seeks to control the advertising of high cost credit products, introduce lending limits and force lenders to provide clearer information on charges as well as refer borrowers having problems to debt advice services.

Mr Blomfield said: “It’s not aiming to stop pay day loans, it’s aiming to stop them ripping people off.

“Sadly, there aren’t these sort of short-term loan products available from banks. Credit unions are trying to respond to meet the needs that people in hardship are in, but the products aren’t really there at the moment.

“If pay-day lenders disappeared from tomorrow it would create some difficulties. All I’m trying to do is stop the rip off and these extortionate loan charges.”

SECOND LEAD WITH HEADSHOT OF STEVE WILCOX

Desperate borrowers battling debt – including pay-day loans – have been left facing eviction after their problems spiralled.

The after-effects of quick cash is a ‘growing problem’ in Sheffield according to debt advice consultant Steve Wilcox.

And an economics expert at the University of Sheffield, Professor Paul Moseley, has previously said that around 40,000 people in Sheffield were forced to turn to loan sharks.

Mr Wilcox, who works at Sheffield Citizens Advice Bureau, said: “What we are increasingly finding is that it is people in financial dire straits are turning to pay-day lenders, because, basically, they’ve got no money.

“They are not having a short-term cashflow problem, which is what payday loans are aimed at, but are in long-term financial crisis.

“It tends to be in the hundreds rather than the thousands of pounds, but when you are somebody on a very low income, that is a major sum of money.

“We have advised people who have been threatened with eviction because they’ve got debt problems and they’ve been made worse by pay day loans.”

Professor Paul Mosley, a Sheffield University economics expert, said, in a book he co-authored in 2011, that about 40,000 Sheffield residents were forced to borrow money from loan sharks because they could not access high-street bank deals.

Mr Wilcox said a problem often seen by debt advisors is when customers cannot afford to pay back the loan and the sum is ‘rolled over’ for a charge or they pay only the interest.

Another is pay-day lenders retrieving payments using a continuous payment authority, which allows a business to withdraw sums from a customer’s account without repeat authorisation – sometimes leaving no funds for bills or food.

Mr Wilcox said: “What often happens is the pay-day lender gets paid, but the rent or council tax doesn’t, so the person becomes trapped in more serious levels of debt.”

The High Cost Credit Bill aims to give customers three days notice of every CPA payment and ensure customers know that they can cancel them through a bank or lender.

Anyone in debt can contact the Sheffield Advice Assesment Line on 0114 2055055.

IN NUMBERS

16,870 - people went to Sheffield CAB with debt problems between last April and this May

£14,866 - the average unsecured debt of StepChange clients in Sheffield Central last year

£1,152 - the average payday loan debt of their clients in the ward last year

812 - the number of clients the charity counselled in Sheffield in 2012

164 - had pay-day loans

THE HIGH COST CREDIT BILL

A ‘health warning’ could be included in all advertising for high cost credit products under the bill proposed by Paul Blomfield.

People would also be pointed to impartial, free debt advice in promotion materials.

The High Cost Credit Bill also suggests:

Requiring lenders to clearly state all fees and charges

Banning texts and phone calls promoting high cost credit

A cap on default charges and lenders required to assess affordability of loands

A central real time database where lenders log details of loans

When customers miss payments they must be pointed to free and impartial advice with charges frozen and proper repayment plans put in place

The draft bill has been pulled together with experts from Which, Citizens’ Advice Bureau and charity StepChange.

It has cross-party support from five Conservative MPs, five Labour and two Liberal Democrat.

The bill will have its second reading on Friday, July 12.