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Payday lenders 'allow borrowers to run-up big debts'

Representatives of the UK's biggest payday lenders have been accused, by the Consumer Minister, of failing to get their house in order.

It follows an admission that they don't always share data with each other, meaning borrowers can run-up debts by taking out multiple loans. The lenders were speaking at a one-off session in Parliament.

ITV News Consumer Editor Chris Choi reports

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Payday lenders admit shortfalls in affordability checks

by - Consumer Editor

Payday firms say they make careful affordability checks. These are supposed to ensure the companies don't lend more than a borrowers can repay.

But today they admitted to a worrying blind spot. It's possible for someone to take out a series of short term loans all around the same time, without the payday firms realising the individual is becoming over-stretched.

The spokesman for Mr lender, Adam Freeman, admitted it could be 60 days before they get the information. Wonga's Henry Raine agreed that better data sharing is needed to plug the information gap.

Wonga: Miliband is wrong to say we prey on vulnerable

The pay day loans lender Wonga has rejected claims by the Labour Leader Ed Miliband that they prey on vulnerable people.

While we recognise that there have been unacceptable practices in the sector, Wonga has been instrumental in raising standards and arguing for better regulation to protect consumers.

We have used technology to bring competition into traditional financial services for the benefit of people across the country. We invite Mr. Miliband and his colleagues to view our film and meet us to discuss how best to serve the popular need for consumer credit in a successful 21st century economy.

– Wonga Statement

Read: Archbishop of Canterbury 'should try Wonga', boss urges

Martin Lewis: Do we really need payday lenders?

Martin Lewis questioned the need for the payday loan industry

MoneySavingExpert.com founder Martin Lewis has told MPs "we'd all be a lot better off" without payday lenders.

He told the Commons Business, Innovation and Skills Select Committee: "Do we really need them (payday lenders)? I think we'd all be a lot better off without them and maybe it's worth the sacrifice for the few small number of people who actually do find them rather convenient.

"If you take 100 people who get payday loans, I would suspect 99% of them would find a cheaper and better alternative doing something else or not doing them.

So the problem is they're used by far too many people and they are not fit for the purpose that they are used for."

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Payday lenders defend loan affordability checks

Payday lenders insisted their affordability checks are similar to those used by credit card firms as they were grilled by MPs on being able to make cash available to borrowers within minutes.

Asked about advertising stating that lenders can send cash within five or 10 minutes, Andy Lapointe, UK public affairs manager at QuickQuid, said: "That's from approval."

He said the process of credit checking could actually take several hours, adding: "The five minutes is indicating the time that they're approved."

Members of the payday loan industry appear before MPs

Russell Hamblin-Boone, chief executive of short-term lending trade body the Consumer Finance Association, said: "When you're transferring money electronically you can do that very quickly.

"If you applied for a credit card, the application process would be as long as if you were applying for a short-term loan.

"The difference would be that you'd have to wait a few weeks for your credit card to come through as opposed to lenders who are able to transfer money directly."

Read: Miliband blames loan firms for 'unpayable debt' crisis

Miliband blames loan firms for 'unpayable debt' crisis

Labour leader Ed Miliband

The Labour leader Ed Miliband has launched an attack on the payday loan industry.

Recalling stories of people he had spoken to recently that had been "preyed upon by payday lenders", he said:

"Last night the boss of Wonga said he was speaking for the ‘silent majority’, who are happy with their service.

"But the truth is he wants us to stay silent about a company where in one year alone their bad debts reached £120 million.

"An industry in which seven out of ten customers said they regretted taking out a loan.With half saying they couldn’t pay it back.

"Payday lenders don’t speak for the silent majority. They are responsible for a quiet crisis of thousands of families trapped in unpayable debt."

Wonga: We compare 'favourably' with credit cards

Wonga's head of regulatory and public affairs Henry Raine

Appearing before MPs, Wonga's head of regulatory and public affairs, Henry Raine, defended the company's business model:

"Wonga's business is aimed to lend to people that can pay us back that's how we make money.

"The vast majority of people pay us back on time. We freeze interest after 60 days, 25% of people pay us back early.

"We are lending to vast numbers of people small sum credit and I think it's fair to say those figures frankly compare favourably with other lenders in the industry including credit cards and banks".

Miliband: 'Wonga economy' a symbol of living cost crisis

As firms including Wonga were being questioned by MPs over the controversial issue of payday loans, the Labour leader Ed Miliband tweeted:

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The Wonga economy is one of the worst symbols of Britain’s cost of living crisis. More in my speech later.

Watch: Wonga critics 'jump to conclusions', boss claims

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