Over 1 million people are planning on turning to a payday lender to help cope with the costs of Christmas, according to a new survey.
The study, by the Money Advice Service, said that seasonal spending was expected to reach £24 billion this year, £1 billion less than 2012.
However, 32% of respondents said they will work up credit card debts through the festive season, while 9% said they are still paying off what they owe from last year.
The payday loan industry has been heavily criticised in recent months. In May, Citizens Advice said the industry was “out of control” and “showed a complete disregard for its customers”.
Earlier this month, Paul Blomfield, MP for Sheffield Central, launched the Charter to Stop the Payday Loan Rip-Off in parliament on Change.org.
“Payday lenders are ripping off millions of people, trapping them in spirals of debt”, he said.
The Financial Conduct Authority (FCA), which takes over regulation powers from April 2014, has outlined plans to regulate consumer credit.
The Money Advice Service advises customers to be wary of payday lenders.
It says spenders should consider alternatives, such as extending overdrafts, applying for a credit card or joining a local credit union.
Abbie Shelton, policy and communications manager at the Association of British Credit Unions (ABCUL), said the news was “alarming”, and “heralds lots of expensive new year financial hangovers”.
She added, “If you are thinking about borrowing to pay for some Christmas expenses, talk to your local credit union instead. They only exist to meet the needs of their members, and don’t just exist to make as much money as possible out of you.
“You can apply for a loan over a realistic period of time – months instead of weeks – and they will make sure you can afford the repayments. And you won’t pay more than 2% a month in interest.”
A one-off evidence session discussing the regulation of the payday loans industry will be held on November 5 at the Palace of Westminster in London.
The business, innovation and skills committee will speak to representatives from the industry will include the heads of Wonga, QuickQuid and Mr Lender and consumer advice bodies Which? and Citizens Advice.
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