Payday lenders are stepping up their advertising as they target cash-strapped shoppers ahead of the festive season.
With just months until the payday lending sector is regulated, unscrupulous firms are making hay while the sun shines, with many playing on consumer anxieties as Christmas nears.
A number now specialise in payday loans to help people “celebrate Christmas” without worrying about cash, promoting them as an easy way to get the extra needed for seasonal spending.
And there are fears that, as the cost of living continues to climb, not least as energy bills rise again, more households could be tempted to use payday loans and get caught in a debt trap they cannot escape.
A similar warning has been issued over the store cards offered by the main high-street retailers, which comes with interest rates of up to 30 per cent.
“Shops are very keen to take advantage of people’s willingness to spend at Christmas, and so are loan companies, like payday lenders,” said Margaret Lynch, chief executive of Citizens Advice Scotland
“But those bargains in the shops are only good value if you can actually afford them. And payday lenders might seem convenient now, but they won’t seem so friendly in January, February and beyond as you sink further and further under the misery of their massive interest rates and late payment fees.”
The Christmas payday loan advertising campaigns are being ramped up just months before payday lenders come under the regulatory scope of the Financial Conduct Authority, which takes on the consumer credit remit from April 2014. It has already warned of tougher rules for payday lenders, including mandatory affordability checks for loan applicants, risk warnings on adverts and a restriction on the “rollover” of loans.
In the meantime, however, payday lenders seem set for a lucrative Christmas. More than one million Britons plan to use payday loans to cover the cost of the festive season, according to the annual Christmas spending survey from the Money Advice Service. Around 16 million – almost one in three UK adults – expect to put at least some Christmas expenses on credit cards.
And while seasonal spending is expected to be lower this year than in December 2012, one in ten adults is still paying off costs incurred last Christmas.
Charities and debt advisers in Scotland reported a huge increase in demand for help with debts in the weeks after Christmas 2012.
The number of people seeking advice from StepChange Debt Charity Scotland more than doubled in January this year. More than one in four of its customers that month were struggling with payday loan debts, compared with one in five usually.
Of the 394 Scots helped by the charity last December, 91 had payday loans with an average debt of £1,339. In January it saw 856 Scots with debt difficulties, 220 with payday loan debts averaging £1,529.
Sharon Bell, head of StepChange Debt Charity, said: “The instant availability of payday loans may seem an attractive proposition to fund Christmas, and with a tougher regime looming in April there may be plenty of tempting offers around.
“But there are cheaper ways to fund Christmas, such as a personal loan, credit card or even an authorised overdraft – provided you can repay the loan in the two or three months after Christmas”.
Another alternative is the Christmas savings clubs run by most of Scotland’s credit unions. Some, including the Scotwest Credit Union Christmas saving scheme, were established after Farepak collapsed in 2006 owing £37 million to 114,000 savers. It paid out a record £1.1m to the 1,600 members of its Christmas savings club last year, while savings into the Glasgow Credit Union Christmas scheme topped £257,000.
Marlene Shiels, chief executive of Capital Credit Union in Edinburgh, said: “Christmas finances and avoiding debt difficulties is something we try and encourage our members and potential members to consider during the Christmas period.
“We have a Christmas savings account where members can build up savings throughout the year. This then becomes available to them at the beginning of November.”
Capital is also among several credit unions which now offer a short-term loan product designed to deter members from going to payday lenders.
Its Swift 500 product offers borrowers access to same-day loans at 26.8 per cent APR (the maximum charge on credit union loans) and up to nine months to repay, as does the Fast 500 service from the Scotwest.