Payday lenders are accused of legal loan sharking because of their sky-high interest rates and punitive penalties when repayments are missed (Photo: Reuters)
Payday lenders are accused of legal loan sharking because of their sky-high interest rates and punitive penalties when repayments are missed (Photo: Reuters)Reuters

The number of Britain's payday loan customers is set to halve over the next year after new tough regulations, negative publicity, and political attacks have weighed heavily on the industry.

According to a ComRes survey, commissioned by the trade body R3 representing insolvency practitioners who advise people who have gone bankrupt, the number of people that say that they are likely to take out a payday loan has dropped to 6% over the next six months, from 11% last year.

"It may be that negative publicity and high profile interventions from politicians are starting to cut through," said R3 president Liz Bingham.

"Personal insolvencies have been edging up over the past year, so you might have expected demand for payday loans to rise too, as those struggling financially look to cover any shortfalls in income."

The UK payday lending sector is worth £2bn ($3bn, €2.3bn) in the UK. Its value has doubled since 2008/2009.

Current figures show that this corresponds to between 7.4 and 8.2 million new loans.

Despite these loans being described as one-off short term loans, costing an average £25 per £100 for 30 days, up to half of payday lenders' revenue comes from loans that are rolled over or refinanced.

Interest rates on the short term loans can reach highly inflated levels.

One of the UK's largest payday loan companies, Wonga, has recently bumped up its representative APR of 5,853% on its website.

Payday lending commercials have rocketed by 64% from 2011 to 2012 after companies, such as Wonga, peddled out 397,000 adverts last year.

However, after public pressure and rafts of negative publicity, payday loan adverts must be banned from children's television, say an influential group of MPs.

The recommendation was made by Parliament's Business Select Committee in its report on the controversial payday lending industry, which is accused by critics of legal loan sharking.

Meanwhile, Britain is set to impose a new law on payday lending companies which will result in a maximum amount a group can charge a customer to take out a loan.

UK Chancellor George Osborne revealed that capping payday loan costs is "the logical step" and that the level of the cap will be decided by the Financial Conduct Authority (FCA).

"We've taken steps to control things like the roll over of those loans and I think the next logical step is to cap the overall cost of credit," added Osborne.

"It's working in other countries, it helps hard-working people, and in fixing the banks we need to make sure we fix all parts of the banking and financial system and payday lending is part of it."