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Since 2009, the number of individuals in debt has increased by 4x as a result of pay day loans according to a debt advisory service.

The Citizens Advice Bureau has cited the accessibility of these types of loans as the cause for the sharp increase in individual debt and is pushing for the imposition of stricter regulations. There are concerns however, that if it becomes too difficult to obtain these sorts of loans, people in need of a short term loan will be forced to resort to borrowing from illegal loan sharks.

If pay day loans are repayed speedily, they can be a useful, inexpensive and legal way of obtaining cash for a short period of time. However, problems can occur when the loans are not repayed promptly. Some companies charge interest rates of over 4000% and so debt can easily build up for late repayers.

Speaking on behalf of the Citizens Advice Bureau, Peter Tutton has urged the government to take action to protect individuals from incurring such debts and force stricter regulations on payday loan companies.The government has responded by reassuring the Bureau that they are conducting research into the matter, but have expressed uncertainty as to whether imposing a limit on the levels of interest rates would be the best course of action. Consumer Minister Ed Davey outlined concerns that such measures would result in individuals turning to illegal lenders.

Stephen Sklaroff, the head of the Finance and Leasing Association, has stated that it is the borrower’s responsibility to borrow within their means and if payday loan companies are open and informative about their interest rates then it is in the hands of the borrower to make the right decision.

About The Author

Lee Murphy

MAAT and ICPA accountant, with a passion for making accountancy and bookkeeping accessible. Other interests include cloud-based software development for web and mobile access, keeping fit, reading, and entrepreneurship.

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