A cross party committee of MP’s have hit out at the number of badly regulated Pay Day and Debt loan companies in the UK.
An increasing number of people are now using these types of companies. The numbers of people now using short term, pay day loan providers have increased from 300,000 in 2006 to 1.9 million in 2010.
Pay day loan companies offer short term credit on an unsecured basis. The rates of interest are usually extremely high. These companies have been criticised in the past for targeting people and families that already have debt problems.
'It is clear that improvements should be made to the regulation of the debt and credit industry,’ the Business, Innovation and Skills Committee said.
The committee suggested that there is a requirement to improve these schemes by
Reduce the rolling over and switching of loans
Seriously consider capping the total cost of the loan
Improve on record keeping
Make the true cost easier to understand by removing percentages
There is now so much concern about this industry that the Office of fair trading has launched an investigation.
The biggest issue and area of concern is the continuous rolling over of loans. In many cases the level of debt keeps increasing due to the high interest rate and administration fees.
The committee has asked the government to intervene and introduce though measures if the OFT investigation finds serious problems within the sector.
Consumer groups have in the past voiced their concern that people who take up the services of debt management companies sometimes end up in a worse situation when compared to the problem to start with.
Sarah Brooks, director of financial services at Consumer Focus, meanwhile said: 'The payday loan industry has had the chance to put its own house in order but has failed to stamp down on irresponsible lending.'