Update 8 October 2014: If you want to help us tell the Lords to ban payday loan ads from kids TV please Lobby A Lord via the Children's Society's tool.
MoneySavingExpert.com creator Martin Lewis has told MPs payday lenders are "in danger of grooming a new generation to this type of borrowing", as he called for payday loan adverts to be banned from being shown during kids' TV programmes.
Martin joined other consumer groups, regulators and payday loan firms to give evidence to MPs on the Business Select Committee today (watch the session on the Parliament website). He warned the lax rules on payday loan advertising risks inuring a new generation to the dangers of these loans of last resort.
More than one in three people with children under 10 have heard their kids repeat payday loan slogans from TV ads, a poll of nearly 3,000 people carried by MoneySavingExpert.com found.
Meanwhile 14% of those polled said when they've refused to buy something for their under-10, they've been nagged to take out a payday loan for it. (See our Payday Loan Alternatives guide for help if you're considering one of these loans.)
The research also shows almost 70% of under-16s have seen payday loan adverts, and nearly one in three parents say their kids see the ads as "fun".
Martin called for the Government to introduce tighter controls on payday loans advertising by:
- Banning payday loan ads from children's television channels and programmes. While lenders claim kids are not their target market, the adverts appear on these programmes and children soak them up. This needs to stop.
- Restricting the nature of the adverts. Payday loan advertising is pervasive. The ads make payday borrowing look like a fun little transaction rather than a hardcore form of debt. Where adverts are permitted, they need to include a string of wealth warnings to ensure the fun is taken away and those seeing the adverts are aware of the dangers.
A report by the Office of Fair Trading in September found "deep-rooted" problems in the way payday loan companies attract and treat customers, and today's grilling by MPs follows intense scrutiny of the sector by the Competition Commission and the Financial Conduct Authority (FCA).
The FCA is proposing new rules to crack down on bad practice, including forcing lenders to put "risk warnings" on adverts to deter borrowers from making a snap decision, but MoneySavingExpert.com warns this will not stop kids from picking up debt-bingeing habits.
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Lenders are 'grooming' next generation of borrowers
Martin said: "Payday loans are part of the costliest kind of instant gratification culture. Now these lenders are essentially grooming children to be the next generation of borrowers. The current explosion in the number of people borrowing in this way is nothing compared to how the next generation will act.
"Payday lenders are now so profitable, they have huge advertising and film budgets which bring in more customers, making even more profit.
"This vicious circle means we now see these loans normalised. That's why we need legislation or regulation to disrupt this market.
"The payday loan industry insists it is not targeting children, but our research shows that kids are being dazzled by catchy tunes and cute puppets.
"That's why I'm calling on the Government and FCA to intervene to restrict the nature of the ads and impose an outright ban on them appearing on kids' TV."
Young people being targeted
In response to Martin's call, Which? chief executive Richard Lloyd, said: "Our research suggests, across the board, that 4% of households take out a payday loan each month.
"For 18 to 29 year-olds, that's nearly double, at 7%. Martin's quite right – there is a growing problem here in terms of younger people being engaged with this market at an increasing rate relative to the others.
"Other things I would do with advertising is to make it really plain what the cost of a loan is, and I would express that in pounds per £100 borrowed, rather than in the annual percentage rate. People tend not to understand APR, and tend not to be able to engage with that metric."
Meanwhile, Citizen Advice chief executive Gillian Guy said: "I think we need to look at a whole raft of things on advertising, to analyse what market segment the companies are targeting.
"Because we hear that they're not targeting the people we're talking about, and yet the ads are on daytime television, they use cartoons, at times when people we see with multiple debts might be at home because they're unemployed."