One in five payday loan customers have not been told about the potential risks of extending the period of their borrowing, new research has found.
A study by Citizens Advice found that many lenders had not done enough to improve practices of properly informing customers, despite promises from the industry and pressure from regulators.
Although there is a perceived lack of information in some cases, the organisation did find that a number of lenders had taken measures to improve when it came to asking borrowers about their financial circumstances, with half of customers citing improvements in this area, compared a third in its previous survey.
It also found that the average amount being taken out for a payday loan was around 1,000, with costs often spread across a number of withdrawals, while those taking them out were also found to be more likely to be in employment.
Evidence for the survey was taken from the feedback of 5,333 customers via an online survey, with figures having been gathered since November 26th 2012, when the industry initially made promises to treat customers more fairly.
October 1st marks the end of a ‘grace’ period given to payday lenders, which was aimed at allowing time for firms to adapt to new regulations brought in by the Financial Conduct Authority earlier in the year.
Gillian Guy, Chief Executive of Citizens Advice, said: “Payday lenders are still not sticking to their word to treat people fairly. While things are moving in the right direction, some payday lenders are still falling far short of responsible lending. Customers need to have the full facts at their fingertips when making decisions about borrowing.
“The new rules should contribute towards ridding the market of irresponsible lenders, but this won’t be achieved by regulation alone. The FCA needs to use enforcement action make sure firms flouting the rules are not allowed to operate. "
She added that the financial pressures being placed on many people across the UK meant the demand for short-term credit was likely to remain strong and that the need for a fairer and more competitive market was therefore stronger than ever.
It is important to remember that payday loans are sometimes a viable option for many people, but there is always a need for potential borrowers to thoroughly consider the impact such a loan may have on their long-term finances and whether it is indeed the right solution for them.