According to research by the Co-operative Bank, about 70 per cent of adults in the UK have debt problems.

(It’s bad enough having “money worries”, but according to the same research, one in 20 of them turn to payday lenders. These organisations offer extortionate short-term, loans secured against a customer’s next pay cheque, where interest rates can be as high as 2,000% EAR (effective APR).

Of course payday lenders defend themselves; they do not compare their interest rates to those of mainstream lenders. Instead, they compare their fees to the overdraft, late payment, and penalty fees that will be incurred if the customer is unable to secure any credit whatsoever. But if you do the sums, it’s easy to see them for what they are – usurers.

 Due to the extremely short-term nature of payday loans, the difference between nominal APR and effective APR (EAR) can be substantial, because EAR takes compounding into account. For a £15 charge on a £100 2-week payday loan, the annual percentage rate is 26 × 15% = 390%; which is bad enough, but the usefulness of an annual rate (such as an APR) has been debated because APRs are designed to enable consumers to compare the cost of long-term credit and may not be meaningful in cases where the loan will be outstanding for only a few weeks.

There are no restrictions on the interest rates payday loan companies can charge, although they are required by law to state the effective annual percentage rate – the APR rate of course and of course no one bothers to work it out when they’re desperate.)