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Are companies trying to making debt spiral? Payday loan companies come under fire for advertising to children
People have been warned about enquiring about payday loans at the best of times, but now it seems that loan companies are trying to expand their reach.
Advertising authorities and the Office of Fair Trading have been battling recently to stop companies that offer payday loans from advertising on social-networking sites like Facebook, in a move that some believe could encourage young people and those with no or poor credit into getting involved with loans for small amounts of money that have extortionate interest rates.
Consumers are urged to be careful after research found that many of the advertisements used for payday loans were misleading. They were understood to be that way because there was not enough information about the interest rates and the legal obligations attached to the money loaned. There are fears this could mean that consumers make decisions with misinformation.
Some people are using the payday loans that are advertised on social-networking websites as a last resort because more traditional ways of getting payment in advance have become a lot trickier to follow through.
The Office of Fair Trading believes that some consumers that seek payday loans do not fully appreciate the extent of the interest costs when they are trying to obtain cash. This combined with no information on the APR of a loan can mean people have to pay more interest than they could handle which can even mean people defaulting.
The consumer charity Credit Action lashed out at companies who were choosing websites like Facebook to advertise, saying: "Lots of credit companies, especially payday and logbook loans companies, are using the medium to advertise their products."
There has been outrage from users of Facebook from around the UK who believe their friends, family and even children can be at risk.
One user said this: "If someone has a poor credit rating it is because they cannot control their own spending, so by giving them more money it's a disaster waiting to happen."
Another added: "I think it is wrong, there are so many people preparing to go to University at this time of year and they may think if they get a loan they will be able to afford it. It's wrong and I feel personally that it is taking advantage of the younger generations."
The companies making the misleading adverts didn't comment. What we have to remember is that technically speaking, advertising payday loans on websites like Facebook is not wrong or illegal – however, not giving enough information about the technical side of things is.