The Consumer Finance Association (CFA) has hit out at the “myths” surrounding payday loans which it says are misleading consumers.
John Lamidey, chief executive of the CFA, said: “There seems to be a lot of confusion about the benefits and costs of short term, often called ‘payday’ loans.
“These loans can be a useful way of meeting immediate short term borrowing needs or opportunities, and avoiding long term debt, as long as they are paid back in full and on time.”
The CFA claims the idea that the high APR attached to pay day loans makes them expensive is wrong. It quotes a report from PricewaterhouseCoopers, which reads: “in the case of payday lending an APR is fundamentally misleading.
“Annualising the interest cost of a product that is only offered as a short-term facility confuses the purpose of the loan and misrepresents the true cost.”
The CFA also disputes suggestions that payday lenders target the vulnerable, unemployed and those on benefits, claiming CFA members require their customers to have a bank account, a job and disposable income.
“94% come from a household where there is at least one full-time worker,” it says.
The trade association denies complaints about payday lending are high – stating the Financial Ombudsman Service received fewer than 60 complains in a six month period.
It says the assertion that payday loans are fuelling debt is incorrect, citing Consumer Credit Counselling Services figures which reveal that clients continue to owe the most on personal loans (£12,911) and credit cards (£12,418).
Lamidey added: “While CFA members account for about 70% of the payday loans made in the UK, and follow a compulsory Code of Practice, not all lenders in the market operate to the same high standards. Our advice to consumers is to make sure that the terms and cost of any loan are clearly explained and totally transparent. If in doubt, try another lender.”
The CFA’s comments come as The Money Shop released figures claiming one in ten consumers relies on payday loans to cover the cost of unexpected emergencies which have not been budgeted for such as parking fines, rent increases, vets bills, car trouble, leaking roofs and underestimated energy bills.
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