Payday lenders slammed at Select Committee

Martin joined other consumer groups, regulators and payday loan firms at a Business, Innovation and Skills Select Committee hearing into the industry this morning. He asked whether payday lenders were really needed (watch the session on the Parliament website).

He said: "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." (See our Payday Loan Alternatives guide for help if you're considering one of these loans.)

"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 by not doing them," he continued.

"They're used by far too many people, and they're not fit for the purpose that they are used for."

Martin's appearance came as MoneySavingExpert.com called for payday loan ads to be banned from being shown during kids' TV programmes. Our poll found one in three parents with kids under 10 say their children have repeated payday loan ads' slogans – an issue Martin also raised at the committee.

He said many payday loan borrowers don't know how to repay the loans within a month, while others should freeze a credit card in a bowl of water instead – as having to crack the ice will make them think about whether they can afford to borrow.

Martin called the payday loan market a "desert of regulation", adding that the process of taking out a payday loan needs to be slowed down so people have time to reconsider.

He backed capping the total cost of payday loans, including any rollovers and fees, but said he wasn't a fan of interest rate caps as annual percentage rates are irrelevant for payday loans, although sky-high APRs were good at putting potential borrowers off.

'Irresponsible lending'

Peter Tutton, head of policy at debt charity StepChange, told MPs he had seen "explosive" growth in the number of people seeking help with payday loans.

He said: "It's not just about the growth of the market. The number of people we're seeing with payday loan debts has grown eight-fold, so we're seeing a much bigger growth in problems than just the growth of the market.

"We're seeing more people with multiple payday loan debts, and the size of the debts are getting bigger."

StepChange says the average monthly income of a client with payday loans is £1,298, while their average debt is £1,665.

Tutton told MPs the problem was "irresponsible lending and ineffective affordability checking".

"Is the payday lending industry taking advantage of people who are struggling in financial difficulty?," he asked.

"Our evidence suggests that they are. In a sense, people are in a hole, and a payday loan is helping them dig that hole deeper."

Payday firms defend lending checks

Representatives of payday loan firms Wonga, QuickQuid and Mr Lender were grilled by MPs about their boasts of being able to make cash available to borrowers within minutes. They insisted their affordability checks are similar to those used by credit card companies.

But recent Office of Fair Trading investigation found some firms' business models appear to be based around people who cannot afford to pay their loans back on time. This means they are forced to roll them over, so the original cost balloons.

The Financial Conduct Authority says it will strengthen protection for customers when it takes over regulation of the payday loan industry in April, with the power to levy unlimited fines and to force firms to hand people's money back.

It also plans to force lenders to place "risk warnings'' on their promotions and advertising, urging consumers to think' before taking out a payday loan.

Additional reporting by Tim Heap and the Press Association.