Which? launches campaign against high cost credit
A campaign from consumer advice group Which? is calling on the Government to bring in tighter regulations on the way money is lent by banks, credit card companies and pay day lenders.
The consumer group has claimed that overdrafts and other high end credit products are just as expensive as controversial pay day loans.
They found that on some current accounts borrowing £100 for 31 days on an authorised overdraft from some Halifax or Santander accounts will cost around the same amount as a high interest pay day lender.
The research also revealed that those who go into an unauthorised overdraft end up getting stuck with high interest and charges if they remain in the unauthorised overdraft for long periods of time. Borrowing £100 for a month on an unauthorised overdraft can cost up to £100 again in charges, more expensive than many pay day loans.
Which? is calling for lenders to take more responsibility when lending money and for the government to go further in regulating the credit lending market.
Richard Lloyd, Which? executive director said: 'The Government and regulators have rightly focused on the scandal of payday lending, but they must not lose sight of the urgent need to clean up the whole of the credit market. High street bank overdraft fees can be just as eye-watering as payday loans.
'Consumers need the credit market to work competitively. It's time to clamp down on excessive charges and irresponsible lending, and to make sure borrowers are being treated fairly whatever form of credit they’re using.'
The Which? consumer tracker has found that around 1 million households are using payday lenders, with around a quarter of these loans being used to pay off other credit bills while 38% used them to buy essentials such as food and fuel.
Earlier this year the Financial Conduct Authority (FCA) proposed new rules for lenders, however the new rules won’t cover high penalty and default fees for payday loans, overdrafts and other high-cost credit products.
The campaign, designed to coincide with a new charter on lending from MP Paul Blomfield, is also calling for people to get in touch with Which? and share their experiences with high-cost credit.
The latest figures suggest that around seven million people have used high-cost credit, with some being charged more than 6000% in interest on short-term loans.
This has seen some recent action to reduce the amount of people relying on pay day loans to get money.
Last April, the Government pledged £38 million to the Association of British Credit Unions Limited (ABCUL) to help modernise the credit union industry and present them as a more viable alternative to payday lenders.
Credit unions are ‘not-for-profit’ co-operatives which allow members to save money together and make responsible loans. These organisations are often run on a local level to ensure members can get the most out of them.
This Thursday (17 October) is international credit union day and will see many Credit Unions and financial bodies offering advice on how to get involved with a credit union service.
Minister for Welfare Reform David Freud said: “Credit unions offer an alternative to vulnerable people who have few safe options to get cash when they need it most. They are the antidote to predatory loan sharks or high-interest lenders.
"We are pleased ABCUL will be carrying out our investment to modernise and make credit unions financially self sufficient so they continue to help those in their communities who need it the most.”
If successful, this funding is estimated to save up £1 billion by 2019.
