A DAD of two had £3,271 automatically whisked out of his bank account in interest after taking out a £200 payday-style loan.
Struggling Dave Williams, 37, became stuck in a cycle of debt and borrowing after lender SafetyNet took the payments from his account as soon as his wages went in.
His short-term borrowing was at a representative APR interest rate of 68.7 per cent, which works out at 292 per cent if measured over a year.
High-interest lenders are targeting people struggling financially amid the Covid jobs crisis, especially with Christmas coming up.
More than five million of us — one in ten adults — have high-interest short-term loans, which amounts to borrowing of more than £1billion a year.
SafetyNet uses new computer software to take payments directly from its 663,000 customers’ bank accounts under “open banking” rules, which is allowed under Financial Conduct Authority regulations.
But it means some borrowers have almost their whole month’s salary swiped from their account within hours of being paid.
This can force them to borrow again straight away as they have no other way to pay home bills and living costs.
Unlike a credit card, there is no option to set a minimum repayment amount.
CCTV installer Mr Williams, from Manchester, said: “My salary went into my bank account overnight, but by the time I woke up, SafetyNet had taken a big chunk.
“I had no choice but to borrow from them again to pay bills and survive. It was a nightmare cycle of debt.”
‘Regulators are asleep at the wheel’
Payday loans and similar high-interest deals are booming again amid Covid’s impact on jobs and salaries.
The loans exploded in popularity after the credit crunch in 2008, but following a crackdown which saw big name Wonga go bust, they are flourishing again in these uncertain pandemic times.
Insiders say financial regulators have taken their eye off the ball.