Children 'groomed for payday loans'
Payday lenders should be banned from advertising on children's television to put a stop to young people being bombarded by messages that getting money this way is "fun" and "easy", MPs have urged.
The Business, Innovation and Skills (BIS) Committee recommended pulling the plug on such advertising on programming aimed at children after hearing fears that the next generation is being "groomed" towards such borrowing and evidence that the average child aged between four and 15 was exposed to 70 payday loan adverts last year.
Recommendations by the MPs also included tackling nuisance emails and texts to people who are "at their lowest ebb" with offers of expensive loans, forcing lenders to contribute cash towards debt advice and making them improve the way they share information with each other to prevent struggling borrowers from taking on multiple debts.
The committee heard evidence from consumer campaigners who warned that "cartoon puppets" used on payday lenders' adverts suggest that taking out a loan can be fun.
Martin Lewis, founder of consumer help website MoneySavingExpert.com, previously told the MPs that the next generation is in danger of being "groomed" for payday loans.
He said he is "delighted" with the MPs' recommendation.
"From our own research, we know children ask their parents to get a payday loan to buy them toys. Whilst parents have the power to say no, it's evidence that kids see this dangerous type of niche borrowing as part of everyday life," he said.
Wonga, one of Britain's most high-profile payday lenders, is well known for its TV ads featuring a trio of elderly puppet characters named Betty, Joyce and Earl who explain the process of taking out a short-term cash loan to viewers.
But a Wonga spokeswoman said: "T he idea that Wonga advertises on children's TV channels or programmes is a myth. We have a strict, long-standing policy not to advertise in this way."
The Consumer Finance Association (CFA), whose members include The Money Shop, Quick Quid and Cash Converters, also said its members do not advertise on children's TV channels.
The MPs' committee chairman Adrian Bailey said: "It is worrying that our children are being exposed to such an extent to adverts that can present payday loans as a fun, easy and appropriate way to access finance.
"Children's programmes are simply not an acceptable place for payday loan adverts."
The rapid expansion of the payday firms and a rocketing number of calls for help being made to charities by people drowning in debt are "not unrelated", he said.
The committee called for a levy paid by payday firms, under regulatory requirements, to be ringfenced by the Money Advice Service. This money could be used to boost the provision of debt advice to struggling borrowers.
The estimated size of the payday loan sector has doubled over a five-year period to be worth around £2.2 billion.
The committee said "health warnings" should be placed on every stage of the payday loan application process.
Payday lenders have come under intense criticism this year. The Office of Fair Trading (OFT) found deep-rooted problems, including some firms appearing to base their business practices around people who cannot afford to pay their loans back on time, meaning the original cost of the loan balloons and they become trapped with that lender.
The OFT referred the industry to the Competition Commission which will report next year.
Next year will also see oversight of payday firms pass from the OFT to tough new regulator the Financial Conduct Authority (FCA) which has already set out plans to crack down on the sector.
The FCA's plans include limiting the number of times payday lenders are allowed to roll over loans twice, forcing them to put "risk warnings" on their advertising and limiting the number of attempts lenders can make to claw back money if there is insufficient cash in a borrower's bank account to two.
Meanwhile the Government announced plans last month to place a cap on the total cost of a payday loan.
The committee said that while limiting the number of rollovers to two times would be a "welcome development", this would still mean that a loan which was meant to be paid off after one month could last for up to three months.
It said: " Therefore, we recommend that the FCA sets a limit of one rollover for each payday loan."
The FCA should also work with the Information Commissioner's Office to put an end to vulnerable people being plagued with calls and text offering expensive loans. If there is evidence of inappropriate targeting, the FCA should move to ban all brokering of payday loans through emails and texts, the report said.
Mr Bailey said: "Vulnerable people at their lowest ebb should not be bombarded by texts and telephone calls offering high-cost loans. But this is what anecdotal evidence suggests is happening."
The committee's report referred to recent research by Ofcom which found that more than half (55%) of payday television ads last year were shown in the daytime schedule.
The number of payday ads seen by children soared from three million in 2008 to 596 million last year, meaning that in 2012 each child typically saw 70 of these ads.
It also called for better sharing of up-to-date information between payday firms, so that they can stop struggling borrowers getting into further trouble by taking out multiple loans with different lenders.
If the payday lenders do not establish better ways to quickly share such information by next July, the FCA should mandate this as a condition of trading in the sector, the committee said.
Peter Tutton, head of policy at StepChange Debt Charity welcomed the call, saying: "Ensuring that firms share data in real time will help to prevent multiple payday loan use and the spiral of debt that can result."
Russell Hamblin-Boone, chief executive of the CFA, said the body recognised concerns about the advertising of short-term loans on children's TV channels over a year ago "and, as a result, there have been no adverts by members on children's channels since then".
He said: "It is important to note that simply viewing an advert doesn't equate to a loan approval. CFA members conduct robust affordability assessments and work with the credit reference agencies before lending to anyone."
A Treasury spokesman said: " We have created a powerful new consumer regulator, the Financial Conduct Authority (FCA), to regulate the payday lending industry.
"Alongside the tough measures the FCA has proposed to curb rollovers and ensure responsible lending, we have asked the FCA to set a cap on the cost of payday loans to protect consumers from excessive rates and charges.
"That will make sure hard-working people are better served by lenders and better protected from sharp practice.
"The Government welcomes today's report, which supports the decisive action planned by the FCA to tackle the harm the payday lending sector can cause, including its new responsibility to cap the cost of these loans.
"We want a banking system that works for hard-working people and to make sure the excessive fees and unacceptable practices are dealt with."