Over 60% of people who took out payday loans were using the money to pay for household bills or buying other essentials like food, nappies and petrol, according to a survey by Which?

I looked at the things people spend payday loans on in this payday loans blog. Research there found that people were spending them on tickets, clothes, presents and all sorts of other non-essentials too.

Which?s figures do show people getting trapped in a downward spiral of debt caught by exorbitant penalty charges because they cannot afford to pay back the loan on time. A quarter who had taken out loans said they had been hit with hidden charges such as high fees for reminder letters, and one in five were not able to pay back their loan on time. A third of people experienced greater financial problems as a result of taking out a payday loan, 45% of them were hit with unexpected charges.

The debt trap is compounded with 57% being encouraged to take out further loans, and 45% rolling over their loans at least once. A third of people were bombarded with unsolicited calls, texts and emails before they had even signed an agreement.

A Which? investigation of 34 payday loans companies’ websites also found that people could face a £150 charge by one company, Quid24.com, if they repaid their loan 10 days late. Most of the companies failed to show clearly their charges or charged excessive amounts for defaulting.

People were also potentially being allowed to take on credit they couldn’t afford – eight out of 34 companies don’t carry out any credit checks as part of their approval procedure, and nearly two-thirds surveyed were not asked about any aspect of their financial situation apart from their salary. Some payday loan company websites also failed to provide any terms and conditions and many of those that did had little or no information about a borrower’s rights and obligations or references to free debt advice – 14 out of 34 lenders failed to inform consumers about the complaints procedure.

Which? is calling on the OFT to properly enforce existing consumer credit and lending rules that already apply to payday loans firms, and to go further without delay to protect consumers by restricting the default charges that payday loans companies can charge. Which? also wants the Government to review other options to protect consumers, including Australian-style proposals for sensible limits on the total cost of credit coupled with measures to increase the supply of affordable alternatives.

I think these are all very good proposals and I hope the Government puts them into practice quickly. Too many people are being caught in the payday loans trap.