A £100 loan left Plymouth man £6,000 in debt

A YOUNG office worker has told how a £100 loan ended up costing him £6,000.

Nick Ellis' finances spiralled out of control after he says they were "hijacked" by high-interest online loan firms.

A top money expert today launched a scathing attack on 'payday lenders' and likened the industry to the drug trade.

Recession-hit Brits flock online to borrow £1billion each year from the booming payday loan industry.

But behind the glossy TV adverts and catchy company names are "merchants of misery" who prey on the young and vulnerable, according to Plymouth-based Steve Meakin, chairman of the Institute of Money Advisers.

The leading cash expert spoke out amid fears of a ballooning crisis of debt-riddled youngsters in the city.

"Debt, like drugs, destroys lives," Mr Meakin said.

New research from the Plymouth Citizen's Advice Bureau (CAB) reveals how around one in five disadvantaged under-25 year-olds in the city has already taken out a payday loan – and half admit to money worries.

The paperwork-free loans can land in a borrower's bank account within minutes – but often come with astronomical interest rates and pricey penalties for missed repayments.

"There has been a huge explosion in the use of payday loans," said Mr Meakin, money advice coordinator at the CAB.

"They are very much aimed at the smart-phone generation.

"My advice to people thinking of taking one out would be: don't.

"Some people use them for a short time and walk away with a smile on their face, but we also know that some people have to go insolvent and get a terrible credit record that means they can't get mortgages – and they're only kids."

Government figures show how 639 people under the age of 25 went through insolvency or bankruptcy last year in the South West.

Mr Meakin said many of those who come to the CAB for help have allowed small payday loans to snowball into thousands of pounds of debt.

"What happens is people take out another loan to pay the loan," he said. "They end up with four or five – often more.

"These companies are complying with the law and they have a recognised need – but they are exploiting that need. These loans are often used by people who we class as vulnerable.

"It's legitimate, legal and explained to people but it's still appalling.We at the Institute of Money Advisers are disgusted by them and the foul stench they've created in the industry."

Mr Meakin continued: "In a sense there is no duplicity.

"But when people are driven into the arms of a lender of last resort they are not making decisions that are necessarily wise.

"We have laws against people selling crack cocaine because we know the effects would be harmful to both the people experimenting with it but also on society as a whole. That doesn't mean to say that every single person who smokes a rock becomes an addict, but we take a view that that type of activity, particularly for young people, should be disapproved of.

"That begs the question, why aren't we protecting our young people similarly from these merchants of misery?

"Debt, like drugs, destroys lives – and we should be discouraging it as a society."

The CAB interviewed hundreds of young city people living in social housing about their finances.

A concerning 48 per cent admitted to having 'money worries', while 36 per cent went as far as to describe their finances as 'bad' or 'very bad'.

Meanwhile, 43 per cent said they had trouble keeping up with bills – and 81 per cent confessed to never having had money management training.

In addition, 21 per cent said they had used payday loans or doorstep credit.

The research, in which two-thirds said they would like help with money issues, helped the charity win £864,210 in Big Lottery Funding last month.

The cash will go towards a five-year project, Wiser Wonga, bringing peer-led advice and practical help to young social tenants in Devonport and Stonehouse.

Mr Meakin added: "Payday loans are very much designed to appeal to young people.

"But the people who run these firms are not driven by the desire of offering affordable credit to youngsters.

"There is nothing wrong with banking or borrowing money but when you start taking 4,000 per cent interest and making it so easy for youngsters to borrow money there is something wrong.

"The only people who really benefit from this are the multi-millionaires who leave behind a trail of destruction.

"When are politicians and regulators going to wake up to the fact that there is a foul stench coming from the very centre of the financial services industry – and it's called greed?"

Tonight's Panorama programme on BBC1 'Debt on the Doorstep' investigates the business of door to door loans.

LEARN FROM MY NIGHTMARE

NICK Ellis is warning others against taking out instant loans.

The 25-year-old went online for a £100 payday advance to cover a string of unexpected expenses at home.

A year later he was on loan number 12, off work through ill health and living in fear of bailiffs. The city's Citizens Advice Bureau eventually helped Nick secure a debt relief order, freeing him of the debt before it rocketed still further. But he said: "It got to the stage where I wasn't able to eat or drink.

"When you have debt hanging over you like that you just can't relax, you don't know what's going to happen next. I was off sick from work for a while. It got pretty bad."

Nick's problems began shortly after he landed a job as an administrator for an organisation based in the city centre.

Six months into the role he moved out of his parents' house to rent his own home in Mutley.

Then, last year, Nick was hit with a series of unexpected bills and sudden household expenses.

"It all came along at once," he said. "I'd literally maxed out my overdraft and I was too embarrassed, or too proud, to ask my family or friends for help. I took it into my own hands."

Nick went online to look for payday credit companies in an attempt to clear his bills.

He said: "I thought they looked legit so I started applying for a couple of loans.

"It started off with little amounts like £100 and then I realised that I needed to take out another one just to keep myself going. I ended up applying for loans just to pay back other loans.

"It became a nasty circle then, just hijacked my finances for about a year until it got the better of me and I had to get a debt relief order. Over the course of a year it was literally 10 or 12 loans I took out. I ended up owing about £6,000."

But Nick said he did not feel he was mis-sold the loans. He added: "I knew what I was getting myself into. It was all high-interest – and I knew that. The pit was already there and I jumped into it, basically. Hopefully people will read this and realise how easy it is to get into trouble with them."

History of payday loans

ALTHOUGH their roots stretch back to 1930s America, the internet has revolutionised payday loans.

Hard-up people may previously have signed up with a doorstep lender or pawnbroker to tide them over until their next wage packet.

But dozens of companies – some of which hit British high streets in the mid-1990s – now offer almost instant credit online.

Payday loans are usually short-term and unsecured loans totalling a few hundreds pounds.

Typified by snazzy TV adverts and the lure of almost-instant cash, the paperwork-free application process is all done online.

A total of 133 payday lenders are now operating in the UK, attracting £1billion of borrowing every year.

However, interest rates are often extremely high – and the penalties for missing repayments can be severe.

Many repayments are set up through a continuous payment authority, rather than a direct debit or standing order.

They allow the lender to take back cash of any amount direct from the borrower's bank account at any time.

If a borrower ends up struggling to meet scheduled repayments, penalty charges and interest rates can rocket – and take priority over other bills such as rent or council tax.

Although growing in popularity, the payday loans market provided just 0.5 per cent of the UK's overall unsecured credit last year.

For every £100 of unmanageable debt nation-wide, around £1.20 is owed to a payday lender.

The industry argues that, like the notorious double glazing salesmen of the 1980s, those flouting the rules are now being exposed.

One firm, MCO Capital, which traded as Help Loan, was last month shut down by the Office of Fair Trading and fined £544,000 for failing to check the identities of borrowers.

The company was duped by fraudsters who impersonated more than 7,000 'customers' – and then chased the identity theft victims for cash.

Loans chief defends industry

A PAYDAY loans chief has defended the “demonised” industry – and urged people falling into debt to seek professional help.

John Lamidey MBE hit back at claims high-interest instant loan companies were targeting youngsters.

Mr Lamidey, chief executive of the Consumer Finance Association, which represents the eight largest UK firms, told The Herald they offered a vital service.

We lend across the income range and we are not targeting young people over and above anybody else.”

Mr Lamidey said only a quarter of customers were aged between 18 and 25 – and that many borrowers were self-employed people whose monthly incomes were variable.

“If you have a lean month, the ability to borrow £100-£200 is really, really helpful,” he said. “It actually helps people stay out of debt.

“We actually turn down nine out of ten people who apply for one. We don’t want to deal with people who don’t pay us back.

”Mr Lamidey said annual percentage rates – often advertised at well over 2,000 per cent – were misleading.

“It sounds wonderful and you can demonise us because it’s a large figure but it’s just not the case for most people,” he said.

“The appropriate measure should be how much it actually costs you – and it costs between £10 and £30 to take out a short-term loan of £100.

“There is no lack of regulation in this industry and the people who are not practicing properly are being weeded out.”

Mr Lamidey said customers struggling to repay a payday loan should contact their lender and independent debt advisers.

“If for some reason you find you’re not able to pay it back, talk to the lender because we all have processes set in stone to assist people through that.”