Payday Loans (PDL)
13 January 2014
The CIPP has been writing to payroll outsourcers and major companies to ask for their support in setting up a new credit union to provide individuals in the UK with an alternative to payday loans. The new credit union is being set up by the Retail Trust but is not confined to retailers.
- It costs £6.57 a day to borrow £100 from Wonga, and some PDL companies charge more than this, a credit union will charge a fraction of this
- If you take out a £100 PDL today and don’t pay it back but let it roll over, in three years’ time you will owe £7.5m (moneysavingexpert.com)
- Over half of PDLs are reported to not explain the consequences of rolling over your PDL
- 25% of PDL customers are reported to be pressurised to extend their loans
- 58% of enquiries to Step Change debt charity report severe anxiety and depression as a result of PDLs
- Exponential growth of PDLs is now estimated to be £4bn, and rising
- 60% of PDLs are reported to have no credit check made
- 70% of PDL cases are reported to include potential fraud (chasing non-existent loans/constant pestering)
The CIPP proposes that:
- Payroll outsourcers collectively (‘The payroll industry’) support the use and availability of Credit Unions as an alternative source of PDL funding
- Provided certain automated system criteria are met and a robust interchange of information is readily available so no manual intervention or software programme writing is required, the payroll industry will NOT charge customers for processing Credit Union loan repayments and contribution to savings plan made through payroll
- The payroll industry will provide this service free of charge as part of its corporate social responsibility
A press release is planned based on the considerable support the CIPP has received for this initiative. It is important to note that the delinquency rate on loans repaid through payroll is less than 1% whereas through other repayment methods it is nearer 8%. The CIPP hopes that this initiative by the payroll industry will encourage businesses who process their own payroll to also provide this service free of charge. There is no doubt that personal debt worries can cause severe anxiety and depression and that this in turn manifests itself into increase in days off sick and reduced productivity so it is vital that employers recognise this and support any initiative to mitigate this.
Prior to releasing any statements in support of this initiative, the CIPP is seeking our members views. Please email Lindsay.email@example.com should you wish to voice your views relating to this initiative and improving financial education amongst employers.