Jeff Salway: Payday loans soaring out of control

There may be several things but the most obvious is that they are all beneficiaries in some way of the financial turmoil in which we remain mired.

In the case of payday loan firms, their growing success (and notoriety) masks a deeper trend. Some two million people in the UK have taken out payday loans in the past year, according to payday group Ferratum, and experts believe that number could rise to 3.5 million before the end of this year as unemployment rises and the squeeze on household incomes intensifies. Their ominous progress into the mainstream could result in them overtaking credit cards, PwC predicted last week.

The extortionate interest rates that payday lenders charge to borrowers struggling to repay their loans condemn ever more people to a spiral of debt from which few will escape. Two in five debt clients seen by Citizens Advice Scotland are going without food or fuel to repay their debts as creditors, including payday loan firms, become more aggressive in pursuit of them.

But a draconian crackdown would be counterproductive because payday loans are not the uniform rip-off they may seem. As PwC pointed out, they are attracting a wider range of borrowers as more people turn to the flexibility of short-term loans at the expense of high street lenders.

Taking control of the payday loan market is not simple; it needs regulation and the more unscrupulous firms banned as a matter of urgency. Focusing purely on the high annual percentage rates of interest would be unhelpful, much as they help highlight the potentially crippling costs for those unable to repay on time.

The emphasis should be on consumer protection by banning the roll-over of interest (in favour of fairer debt repayment methods); reining in TV advertising; using repayment illustrations to help people understand how the costs can roll up; imposing a cap only at a high rate to prevent lenders from recouping their costs through less transparent charges; raising awareness of alternative forms of finance, such as credit unions; opening up banking for the financially excluded and boosting access to free financial advice and debt guidance services.

Kiss goodbye to romantic notions

It’s Valentine’s Day on Tuesday but if you’re expecting your partner to splash out this year it might be worth reviewing your expectations. Scots have cut back the amount they spend on their partners by more than a sixth, on average, as they feel the financial pinch.

We all know it’s the thought that counts and it’s just as well, with seven in ten Scots now opting for cheaper dating activities, according to research by Santander Credit Cards.

People in Scotland spend just over £953 a year on their other halves on average, when the cost of birthdays, Christmas, Valentine’s Day, anniversaries and other occasions is combined. That may seem generous yet it’s almost £100 less than two years ago.

One in ten Scots say they are buying their partner fewer gifts because they don’t have the money and another 10 per cent are being careful because they’re worried about their financial situation. Around 3 per cent claim to have been deterred from relationships entirely because of the perceived financial costs.

Saving money is common sense right now, but keep an eye on that fine line between frugality and being tight-fisted. In other words, no matter how skint you are, don’t buy your other half the Asda Valentine’s card unless they have a very dry line in humour. With the “Smart Price” logo on the front and the legend “my love for you is priceless!” on the inside, this 7p card could have been dreamt up by divorce solicitors.