The beginning of the end for payday loans?

Life is getting tougher for payday lenders. Is the bubble about to burst?

Last week was a miserable one for payday loans.%VIRTUAL-SkimlinksPromo%

Back in March, the Office of Fair Trading wrote to the 50 biggest payday lenders, warning that certain changes would need to be made or else their credit licences would be at risk.

Last week it was revealed that of the 28 that have responded so far, ten have either surrendered their credit licences or promised to no longer offer payday loans. It seems the thought of actually treating borrowers properly was simply too much for them to bear.

Next came a report from R3, the insolvency trade body, which suggested a fall in demand for payday loans. It found that just one in 14 adults was planning to take out such a loan, compared to one in nine when the study was last conducted last October. R3 suggested that one reason for the fall in demand may be the negative image payday loans now have.

And now comes the revelation that lender QuickQuid has sent out a host of emails demanding the repayment of loans, or else the debt collectors would be called in. The trouble is the recipients of the emails have never actually taken out a loan with QuickQuid.

It doesn't exactly look like an industry in the rudest of health, does it?

Tougher measures coming
Things are likely to get even worse for some payday lenders. The High Cost Credit Bill is currently going through Parliament. It's a Bill which will make life even tougher for payday lenders, and introduce extra protection for borrowers and has the support of Lovemoney bloggers the StepChange Debt Charity.

The Bill would mean health warnings on payday loan adverts, more thorough credit checks before loans can be approved and improved transparency about the collection of payments. Lenders will also be required to advise borrowers where they can get free debt advice at certain trigger points (such as asking to extend the loan).

All of these measures will make life just a little more difficult for payday lenders. Coupled with the fact that the Government has just held its first payday summit, it's fair to say the payday loan industry is under the spotlight as never before.

Some believe that the bubble is about to burst for payday loans. But I'm not so sure.

The demand for payday loans
There is no doubt in my mind that one of the reasons for the huge growth in payday loans has been the sheer ease with which you can get your hands on the cash. For example, QuickQuid promises that your money will be on its way within ten minutes of the loan being approved.

You fill in a few details online – or even on an app on your phone – and before you know it there's a stack of cash sitting in your account.

But while the loans may be pushed as an option for all sorts of unnecessary spending (DoshLoans, for example, suggests its loans are an option for "that sale you simply cannot afford to miss"), for many borrowers payday loans are far more urgent.

According to research by the Consumer Finance Association, over half (54%) of payday loan borrowers felt their loan had made it easier to pay their bills on time. And 56% said that using a payday loan had stopped a financial difficulty becoming a crisis. These aren't people that want £300 to spend on a smartphone or some new clothes.

And that demand is not suddenly going to disappear just because lenders are forced to clean up their acts. It just means that people are less likely to be taken advantage of by the less scrupulous payday lenders.

It's easy to scoff that no-one should be 'crazy' enough to sign up for a loan with a four-figure APR. I know I'd never do it. And I'd prefer people to look elsewhere if they really need the cash, such as their local credit union. Read The best alternatives to payday loans for some more suggestions.
But there are plenty of borrowers who know exactly what they are getting into and are perfectly content with the experience.

Payday loans aren't going anywhere. The best we can do is clean up the market.

What do you think? Are payday loans on the way out? Or are they here to stay? Let us know your thoughts in the Comments box below.

Beware the small print
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The beginning of the end for payday loans?

It is reasonable to assume that if you take out a mobile phone contract at £30 a month for 24 months that's exactly what you'll pay unless you exceed the tariff. Yet mobile phone providers have come under fire for a snag buried in the small print – a clause to allow mid-contract price rises.

Prices are rising by a median of 81p a month and 70% of consumers are completely unaware off this sneaky move, according to Tesco Mobile, so be sure to check any new contracts before you sign the dotted line.

Financial service providers always refer to 'typical APR' in advertising to attract customers with favourable rates of interest.

Yet the typical APR on loans and credit cards is only available for those applicants who have a squeaky clean credit record, everyone else could end up with a much higher rate. For example, under EU rules, credit card providers only have to provide the typical APR advertised to 51% of applicants.

So always consider this when applying for accounts and products, and if approved – look out the actual APR that you will be charged.

The highest paying savings accounts on the market tend to come with a string of strict terms, which if you fall foul of, result in a drop in interest. Common requirements include paying in a set sum each month and not making withdrawals during a set period.

Make sure to fully understand these terms before opening a savings account and if you choose an account with a six or 12 month bonus, remember that this will plummet when the bonus period ends.

Cashback credit cards that pay you a small percentage each time you spend on the card are full of loopholes in the small print. All have a maximum spend, but many have a minimum spend too.

For example, the Sainsbury's Cashback Low Rate card advertises that it offers users 5% cashback for the first three months. However the 5% cashback is capped at £50 a month. A further 5% cashback is subject to you spending £500 a month on the card (£250 of that at Sainsbury's).

Attempt to repay your mortgage early and you may be greeted with a hefty fee in the form of an early repayment charge. These penalties vary from lender to lender and even deal to deal, but are typically be around 10% of the outstanding balance.

Details of any early repayment charges should be clearly outlined in your mortgage contract but it is worth double-checking with your lender before you try to make a payment.

Insurance is an incredibly complex area of personal finance and different forms of cover are riddled with different hitches that make it crucial to read the small print. Failure to do so could lead you to pay for a product you would be never be able to claim upon, or unknowingly do something that invalidates your claim.

Always buy the right level of cover for your needs and pay close attention to any exclusions in the policy wording. For example, many travel insurance policies for winter sports won't pay out for treatment of injuries incurred while under the influence of alcohol.

Think a credit card can't do any damage at home in your drawer? Think again. Some credit and store cards charge a dormancy fee if you don't use them regularly.

For example, all Santander-issued store cards, including Topshop and Laura Ashley cards among others, charge a fee of £10 if you remain in debit for three consecutive months.

Exceed the monthly usage allowance in your broadband deal and you could be hit with a huge fee. Common with the cheapest broadband deals on the market, penalty charges for going over your contracted limit can push your bills up even higher than if you paid for a deal with unlimited usage.

According to Talk Talk, some households are being forced to pay an additional £40 per month for exceeding their usage allowance. BT for example, charges £5 per every 5GB extra used.

Familiarise yourself with the download limit in your package and the penalties for exceeding it, decide whether you are better off with an unlimited deal.

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