29.06.2012
Workers are increasingly using payday loans because their wages run out before the end of the month, according to a new report published by the union Unite.
An independent survey of 350,000 people commissioned by the union found that more than eight out of ten of working people report that their wages cannot last the month, with 12 per cent of that group turning to payday loan companies such as Wonga, The Money Shop and Quick Quid to tide them over in the last week before receiving their wages.
Unite calculates that on interest rates of up to 4,200 per cent annually, the average borrower is handing £66 per month in interest alone back to the payday lender each month – and says a worker borrowing £200 in a month uses three working days in a month to pay it back.
Unite general secretary Len McCluskey said:
“Working men and women are under horrific strain, lumped with wage cuts and rising costs. Their falling wages simply do not last the month and in trying desperately to get by they are being driven into the arms of vulture lenders.
“Right now, in this week, thousands will be borrowing to get by, and they will be paying horrific levels of interest on these loans. Instead of spending their wages in local shops and businesses, they are handing three days’ worth over to companies like Wonga.”
CDFA has already reported that a recent survey by consumer organisation Which? found that over 60% of people who took out payday loans were using the money to pay for household bills or buying other essentials like food, nappies and petrol.
CDFA’s Chief Executive Ben Hughes says customers aren’t “borrowing for pleasure or leisure. Squeezed incomes and financial exclusion – and an increasingly aggressive approach to marketing from high cost lenders – mean that users of high cost credit have quadrupled in the last four years to four million. And as more and more household income is needed to pay the interest on high-cost loans, people are left with less money to spend, hurting an already ailing economy.
High interest lenders must be better regulated – and alternative, affordable and ethical finance providers, such as community development finance institutions, need to be more visible and better supported so vulnerable families and individuals have an alternative to these predatory lenders.”
Where next?
- The independent survey was conducted for Unite by Mass1, a social research company, which tracked around 350,000 people, mainly members of Unite, since January 2011. Read Unite’s press release here.
- People struggling to pay food and bills caught in payday loans debt trap
- Read about CDFA’s JUST Finance campaign for more support and growth for the ‘Unsung Heroes’ of the finance sector and get involved easily yourself