Payday lenders are essentially “grooming” the next generation of borrowers and should be banned from advertising on children’s television channels, a consumer finance expert has told MPs.
Martin Lewis, the founder of MoneySavingExpert.com, said one in three people with youngsters under the age of ten reported that their children could repeat payday loan ad slogans.
Mr Lewis told the Commons business, innovation and skills select committee: “I think we are in danger of grooming a new generation towards this type of borrowing. And if you think we’ve got problems now you wait until ten years’ time.
“Grooming is the right term. We’re talking about a market that didn’t exist five years ago. They’ve created the demand, they’ve created the operational structure, and now they’re saying it’s what people want.
“It’s deliberately contrived and controlled.”
He said new data from MoneySavingExpert.com found 14 per cent of those surveyed reported being “nagged” by their young children to get a payday loan to pay for something they had refused to buy.
He told MPs: “This niche lending of last resort has been normalised to a mainstream form of credit by the use of advertising.”
In a statement following his appearance before the select committee, Mr Lewis said: “The payday loan industry insists it is not targeting children, but our research shows that kids are being dazzled by catchy tunes and cute puppets.
“That’s why I’m calling on the government and the Financial Conduct Authority [FCA] to intervene to restrict the nature of the ads and impose an outright ban on them appearing on kids’ TV.”
Asked if there should be restrictions on advertising by payday lenders, Citizens Advice chief executive Gillian Guy said: “To be honest it reminds me of the old days of cigarette advertising, where it was all very sexy and a good thing to be doing, and we didn’t worry about health warnings.”
Their comments came after MPs grilled representatives from Wonga, QuickQuid and Mr Lender, as well as trade bodies, about their business practices.
The industry faces a clampdown by regulators after charities accused lenders’ behaviour of being out of control.
A recent investigation by the Office of Fair Trading (OFT) found some firms’ business models appeared to be based on people who could not afford to pay loans back on time, meaning they were forced to roll them over, with costs ballooning.
Payday lenders insisted their affordability checks were similar to those used by credit card companies.
Henry Raine, head of regulatory and public affairs at Wonga, said his company did “everything we can to lessen the effect of bad debt”.
Asked if he thought Wonga’s charges were extortionate, he said: “No, of course we don’t accept that. With Wonga the first thing you see on the website is the amount it’s going to cost you. You choose how much to borrow, and for how long.
“The product is actually used moderately by most people.”
Mr Raine said Wonga’s average loan was £174 borrowed over 17 days. People got texts reminding them when repayment was due and numbers to call if they were in financial difficulty.
The committee hearing pre-empts the transferral of regulatory powers in the consumer credit market from the OFT to the FCA. The new body, which came into being in April, has the power to impose unlimited fines and compel businesses to give people their money back when they have lost out due to poor treatment.