Lewisham tops the league for payday loan debts as the Government announces plans to curb the lenders. EastLondonLines investigates.
Visit any high street in Lewisham and you will see brightly coloured signs inviting you to “Come on in, get up to £2,500 cash”, or promising “Up to £1,000 for any emergency.” From Deptford to Downham, payday loan shops are clearly visible and the borough now has the undesirable distinction, according to the Consumer Credit Counselling Service (CCCS), of having the highest proportion of payday loan debts in London.
This week, the government announced plans to cap payday loans, limiting the amount of interest that a lender can charge and introducing an independent regulator.
The introduction of a payday loan cap is designed to protect borrowers from spiralling debts, and within Lewisham, the issue has become a contentious one.
The borough currently has around 15 registered shops offering payday or short term unsecured loans to its customers. This abundance of payday loan companies has contributed to the population of Lewisham being London’s largest payday borrowers.
The study by the CCCS found that of those Lewisham residents who had sought advice regarding debt, 10 per cent had taken at least one payday loan out, with an average loan value of £530.47 per person.
Payday loans have become so popular that in October of this year the Mayor of Lewisham, Steve Bullock, addressed the issue, urging residents not to use payday lenders as they may find themselves “trapped in a downward spiral of debt.”
This view is echoed by residents like Charissa Lewis, a parent from New Cross, who said: “I had a loan out with one of these companies. The problem with them is that the interest never goes away, and they keep tempting you with more money too.”
Mike Harris, Labour Councillor for Central Lewisham and long-term anti-payday loan campaigner said: “I know of too many people who have ruined their lives through debts that have quickly snowballed.”
He added: “For some people, a payday loan makes sense. But these companies don’t make their profits for sensible borrowers- like bloodsucking parasites they target the most vulnerable people in our communities.”
He advised people to investigate other borrowing options to avoid being trapped by debt. Harris recommends credit unions as an alternative to payday loans.
Currently there are credit unions in Sydenham, New Cross and Downham, which provide easily accessible cash loans like payday loan companies, but at a far lower rate of interest.
Liam Carlisle, deputy manager of Lewisham Plus Credit Union said: “If we compare the charges for a £500 loan from both financial services over one year the costs difference is staggering – with a payday loan, the cost would total over £7,500 (1,500 percent APR), while a similar loan from us would cost only £564 (26.8 per cent APR).”
He added: “We are really pleased when people take control of their own finances. This means that the local economy is much better off to spend more of their own money on local goods and services.”
With around 10,000 members, Lewisham Plus Credit Union has seen an increase of borrowers such as Sarah Liles, a bus driver from New Cross, who said: “The credit union has been great for me. When I was out of work I was able to get a loan that helped me survive until I found a new job. I encourage anyone to use them, I even got my two boys to set up accounts with them.”
The fact that payday loans remain so popular is, according to the companies themselves, due to the fact that they provide quick and easy short-term credit for those who otherwise do not have access.
A spokesperson for The Money Shop, which has four shops in Lewisham, said that payday loans were still popular because they provide “convenient short term access to credit for customers which is affordable when compared to the unauthorised overdraft charges by banks”.
She said: “We never advise our loans as a feasible long term loan option and our voluntary code of conduct ensures that loans are frozen after 60 days, so that people’s loans do not spiral out of control.”
These views have been supported in some independent reports.
One such report, commissioned by the Office of Fair Trading in 2010, said that: “In a number of respects, these markets work reasonably well in that they serve borrowers not catered for by mainstream suppliers. There is evidence that some lenders do not levy charges on customers who miss payments or make payments late”.
Reports such as these, however, do not compare to the wave of public criticism that has emerged against payday loan companies. In response, the government announced this week that greater controls are needed over payday loan companies nation-wide.
Harris welcomed the government’s reaction, but warned that results should only be compared once the level of caps is finalised.
He said: “The fight isn’t over yet; we need to see what the cap actually is. If it’s too weak it may not make any difference.”