Costly loans 'exploit the needy', says North MP

Dec 18 2011 by Tom Rowley, Sunday Sun

PAYDAY loan firms have been criticised for “not believing in Christmas” as they charged North folk the equivalent of up to 3,960% interest for loans to buy presents.

A Sunday Sun investigation found that companies across the region quoted interest of up to double the original loan.

Firms in Newcastle and Stockton said they would let a customer “roll over” their loan with no cut-off date, racking up more interest every month.

If the customer kept a £200 loan for Christmas presents for a year, they would end up paying back up to four times as much.

In some cases, the loans would be the equivalent of more than 1,000% APR – the annual percentage rate used to enable customers to compare deals.

The Newcastle Citizens’ Advice Bureau called on the Government to make such “absolutely extortionate” interest rates illegal. Ronnie Campbell, MP for Blyth Valley, said the sums were “outrageous”.

Our probe came as the Office of Fair Trading said it would review payday loan companies next year to check they are complying with responsible lending rules.

The market has boomed in recent years, with the volume of payday loans tripling since 2007. UK customers now borrow more than £1.7bn from such companies a year.

In Newcastle alone, 15,000 people contact the Citizens’ Advice Bureau every year with debts. About a third of these people have a payday loan.

These loans are being taken out by people as young as 18. In one case, a Newcastle woman managed to run up total debts of £100,000.

In our investigation, the reporter asked how his unemployed friend should go about borrowing £200 for Christmas presents.

An assistant at the Stockton Cheque Centre said: “A customer borrowed £50, they paid back £61.25 and the APR on that is 3959.60. That’s over 20 days based on a £50 borrow.”

He said a customer who took out a £200 loan for a month would have to pay £45 interest.

Asked if he could extend the loan, he said: “You can pay the interest up to 5.30 the day before and roll the loan over to the following month. There’s no timescale on that, so you can do that as long as you need to.”

If a customer did this for a year, they would end up paying back £740 – £540 interest plus the original loan.

The assistant was confident the customer would be able to take out the loan.

“It is obviously getting quite busy over Christmas, but we always find time to do the loans. There’s not a problem with that. We’ve had one loan refused over the last two weeks,” he said.

The Money Shop in Newcastle’s Newgate Centre also said a customer could “roll over” his loan.

An assistant pointed out that “It’s not a long-term solution,” but added “There’s no cut-off date. It’s not obviously advisable to do it for a long, long time, but it’s there to obviously make it a little bit easier and to spread the cost.”