Payday loans

According to a debt charity, StepChange, the number of people struggling with payday loans has risen by 42% in the past year. In the first half of 2014, the charity dealt with 43,716 consumers who were in trouble with payday lenders, compared with 30,762 in the same period last year.

Typically someone will borrow a few hundred pounds from a payday lender for a short time, to tide them over until they receive their next salary payment. The cash is often emergency borrowing to pay an urgent unexpected bill. The borrower will usually offer a post-dated cheque to the lender to cover the repayment cost of the loan, inclusive of interest. The problem for a borrower starts if he/she cannot in fact repay the loan as planned as the interest then builds up rapidly and can soon be disproportionate to the size of the original loan.

The Financial Conduct Authority (“FCA”) is already consulting on plans to cap the costs of payday loans, including a proposal that no-one should have to pay back more than twice the amount they originally borrowed. The FCA has also suggested a fixed fee of £15.00 if someone defaults on repayments. StepChange is calling for the proposed cost cap to be even tougher and suggests that the maximum fee payable should be £12.00 in line with default charges on credit cards.

The FCA will make a final announcement on the size of the cap later in the autumn and it will take effect in January 2015.

Sarah Mower is a Chartered Legal Executive at Barker GoteleeSolicitors in Ipswich.