Multiple payday loan borrowers rise

The number of people struggling to repay multiple payday loans has increased threefold in three years, according to a national debt advice charity.

The Consumer Credit Counselling Service says 2,000 of its clients so far in 2012 have had five or more payday loans, compared to 716 for the whole of 2009. Of these, 173 had 10 or more loans compared to only 42 in 2009.

Payday loans are short-term forms of borrowing – typically lasting no more than 30 days – usually offered at a very high cost. One payday lender called Microlend is charging a representative APR of 4,640%.

It is easy for a borrower to take out multiple loans because few of the estimated 200 firms operating in the UK file details of customers and their borrowings with the credit reference agencies. This means that even if they check an applicant's credit record they may not be able to see all the loans the applicant already has, making it impossible to judge whether they can afford to make their repayments.

The Office of Fair Trading, which is responsible for licencing payday lenders, is currently conducting an extensive review of the payday lending sector prompted by fears some lenders are taking advantage of people in financial difficulty.

One of the issues under review, which has involved visits to 50 companies, including some in the US and Europe which lend to British customers, is whether firms are giving loans without first checking adequately that the borrower can afford to repay them.

Delroy Corinaldi, CCCS external affairs director, said: "Payday loans are not the cheapest form of credit, but some people find them useful and are able to repay what they owe at the end of the month. However, multiple payday loans can very quickly become unmanageable.

"Measures must be put in place to ensure more people don't find themselves in this situation, and the CCCS calls on the payday loan industry to address this issue urgently."

Despite the high costs associated with payday loans, the CCCS has seen a rise in the number of people seeking help with them, rising from 6,491 in 2009 to 17,414 in 2011. So far in 2012, 16,467 people have contacted it for help with payday loans. The average amount owed by those seeking help has also risen, from £1,187 in 2009 to £1,458 in 2012.

Richard Griffiths, spokesman for the payday lender trade association Consumer Finance Association, said the increase reflected the fast growing numbers of people using payday loans, although the body does not yet have up-to-date figures for how many loans are being issued by its members.