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‘You end up owing a hell of a lot more’: Financial experts reveal highest payday loan debt is in North West

By Michael Kelleher

Payday loans have contributed to an astonishing rise 42% rise in household debt in England’s north west region – the highest in the UK, according to experts.

A report by the Office for National Statistics, ranging from 2006/08 to 2008/10 revealed the North West was the worst-affected area in Britain during that period.

Una Farrell, a spokeswoman for leading debt charity Stepchange, revealed the dangers of payday loans and the vicious cycle which is trapping borrowers.

“People fall into a debt problem a lot quicker than they would with a credit card or a personal loan,” she said.

“It is high cost credit as it is but if you can’t repay it at the end of the month, you are penalised by a charge and it rolls over.

“Within three or four months you can end up owing a hell of a lot more than you borrowed in the first place.

“It is the most vulnerable people who have to take them out so it essentially means the poor pay more for their money.

The ONS report revealed that between 2006-08 and 2008-10 the only region not to take on more debt was London, while the East Midlands saw the second biggest rise with a 33% increase.

The ONS categorises household financial debt as credit and store cards, overdrafts and all fixed-term loans excluding mortgages, and this reached £94.7bn in Britain during the period examined.

Ms Farrell pinpointed public sector cuts during the recent economic downturn and a lack of job opportunities as big factors in the rise in debt in the north-west.

“The reason why it is particularly bad in the North West is that if you are living up there it is harder to move about and get another job the way you would if you were living down in London,” she said.

“That area might have been more dependent on public sector employment than the south or south east and it was more affected by the public sector cuts.

“The north is definitely suffering a lot more than the south because it was more dependent on public sector in terms of employment.

“People in the north have lower income so they are that bit more financially vulnerable.”

The Office of Fair Trading recently released a damning report which indicates too many people are granted loans which they cannot afford to repay.

The Financial Conduct Authority, which will replace the Financial Services Authority in April 2014, has warned it intends to clampdown on ‘abusive practices’ in the payday loan sector.

The regulator said there would be “more scrutiny of higher risk firms before they are allowed to operate in the market, and significantly more scrutiny of the integrity and competence of the individuals in key positions in all firms”.

Payday lenders have been given 12 weeks to amend their practices after a year-long review uncovered widespread evidence of irresponsible lending and breaches of the law.

Hazel Blears, Labour MP for Salford and Eccles, is well aware of the dangers of payday loans and welcomed the stricter regulations.

“People can be tempted by offers of multiple credit cards and store cards,” she said.

“That might seem great in the short-term but it can store up problems for the future.

“I’m really worried about the actions of some high street ‘pay day’ lenders, which offer virtually instant loans at extortionate interest rates, sometimes without a credit check.

“The Office of Fair Trading this week gave them 12 weeks to change their business practices or risk losing their licences.

“It must make good this threat, because irresponsible lending can really pile on the misery for people already facing money worries.”

Picture courtesy of Images of Money via Flickr, with thanks.

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