Government urged to act against payday loans

pay day loans

pay day loansThe Government is again being urged to act against payday loan providers following the news that a man was recently given a more than 5,600,000% interest rate for repayment on his loan.

The man borrowed £450 from Capital Finance One for only 11 days, but had to pay the provider back £625.50.

According to The Financial Ombudsman Service (FOS) the annual premium rate (APR) on his loan was quoted at 5,607,040.5%.

One source said: "It was impossible to know how they got to this figure. It just goes to show how murky the payday world is."

Captial Finance One refused to comment.

'Bargepole warning'

The FOS settled 271 complaints - usually in the customer's favour - during the first half of 2012, which was almost the same figure for the whole of 2011.

Another payday loan provider, Wonga, charges a typical APR higher than 4,000% and gave out 2.5 million loans last year.

Wonga says most borrowers pay back the loans within a matter of days, but the Government have been urged to act against these providers fast.

In these uncertain economic times, it is thought that roughly 10 million adults in Britain - nearly one in six - are having financial difficulties.

As a result, the number of people looking for help with excessive borrowing has risen to a record 1.54 million from 1.4 million last year, according to the Money Advise Trust (MAT) charity.

Free debt advice

But there is no need to pay for financial advice or get into even more debt by taking out payday loans to deal with any problems.

The MAT aims to improve the level and availability of free, independent financial help, while other charities such as the Citizens Advise Bureau (CAB) can also provide excellent free advice on the internet as well in drop-in sessions.

Almost 50% of people using the CAB website are seeking debt advice, while 10% of visitors are having mortgage repayment difficulties.

Also, more than 1,700 CAB volunteers run free Money Active help sessions, at which around 66% of those attending said they felt more confident with their finances and 25% said they now save money differently as a result.

Citizens Advice Bureau chief executive, Gillian Guy, said: "For many people, money is tighter now than ever before - so we're really pleased to have helped so many people get to grips with their finances and find ways of saving money."