Extending payday loan cap could stop thousands getting into spiral of debt

New research from Citizens Advice shows that extending payday loan rules to the doorstep lending market could prevent their customers getting into problem debt, and save up to £123 million in interest payments on up to 540,000 loans each year.

Citizens Advice is concerned that irresponsible lending and the increased cost of borrowing due to refinancing is pushing home credit users into a spiral of debt. Its modelling found consumers end up paying back more than twice what they borrowed on up to 490,000 home credit loans each year due to refinancing.

More than 1.6 million people use home credit loans in the UK, making it one of the largest high-cost credit markets. By changing its definition of high-cost short-term credit to include home credit, the FCA would give these consumers the same protections as payday loan customers – a move which has seen a dramatic reduction in the number of people coming to Citizens Advice for help with payday loan problems.

In the current financial year (2017-2018), North Tyneside Citizens Advice have helped 609 clients with 1553 issues relating to unsecured personal loans, including doorstep lenders. This was significantly more than the 125 clients who came to us for help with payday loans, and demonstrates the greater need for advice created by credit with fewer customer protections.

We are calling on the Financial Conduct Authority (FCA) to give consumers the same protections as payday loan customers by including home credit in its definition of high-cost short-term credit when it publishes its proposals for the high-cost credit market in the Spring. This would protect consumers by:

• Limiting the number of times each loan can be refinanced
• Ensuring they never repay more than twice what they borrowed. Home credit is the most common form of high-cost credit problem Citizens Advice deals with, with lenders charging interest rates of up to 1557%. Its new ‘Doorway to Debt’ report reveals the people it helps with issues relating to these loans are more likely than its average debt clients to have a long-term health condition or be behind on essential household bills.