TARA EVANS: Unemployed 18-year-old applies for £300 payday loan and is offered £500 - is this responsible lending?

By Tara Evans for the Daily Mail

Published: 14:47 GMT, 5 July 2013 | Updated: 16:46 GMT, 5 July 2013

Earlier this week This is Money revealed that Kerry Katona had been declared bankrupt for the second time in three years.

At the time the ex-popstar was the face of a payday loan company, Cash Lady. The firm had been embroiled in its own controversy when it had its TV advertising campaign, featuring Katona, banned because the regulators deemed that it encouraged debt to fund a celebrity lifestyle.

The former member of Atomic Kitten continued to advertise the payday loan firm until earlier this week.

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You've got to be kitten me: Kerry Katona has been dropped as the face of payday loan company, Cash Lady, after being declared bankrupt for the second time.

On confirming that Katona had been made bankrupt, on her own petition, we contacted Cash Lady for a comment.

A spokesman told us that they were dropping Katona from their ads and her picture has since been removed from their website.

Earlier this year Katona wrote a blog for the Huffington Post where she defended her choice to promote the short term lender given the controversy that the industry has faced in recent months.

In the piece she said: ‘CashLady.co.uk is ONLY designed for people who have a job which is why I agreed to do it.’

One This is Money reader, Zeke, contacted us to say that this wasn’t the case. He explained that, after seeing the ad, he had applied for a £300 loan through Cash Lady as an unemployed eighteen-year-old presuming that he’d be turned immediately down.

The result? They offered him a £500 loan. (See the screen grabs from his blog below.)

Apply please: A screengrab from the Cash Lady website that appeared on a This is Money readers blog after he applied for a loan.

Loan please: The page that Zeke was directed too when he applied for the loan.

Zeke said that he was unemployed but that he had a monthly income of £600. A loan of £500, designed to be repaid with interest within one month, would wipe out nearly all of this.

Zeke emailed us to question whether this was responsible lending. A great question. We put it to Cash Lady.

Despite the Cash Lady website seeming to offer Zeke a £500 loan, a spokesman said that ‘Cash Lady is a broker, not a lender’  and therefore 'would not have been involved in the decision making process as to whether or not he would be offered credit'.

Cash Lady added that if Zeke had continued the application then he would have been referred to a lender which offers guarantor loans, rather than a payday loan that is unsecured. It says this is responsible. 

The spokesman continued: ‘The second set of screenshots (starting with "Zeke we can lend you £500") didn’t come from us. Our application form doesn’t ask for full debit card details, as we don’t handle any transactions.

Spam: Zeke set up a new email address to apply for the loan and was bombarded with emails from similar lenders

'We ask for their bank account details and to verify that they have a debit card, and that information gets sent to whichever lender provisionally accepts the application, if any do.’

'Once he applied with us, his application information went through to the list of lenders we work with, and FLM Quick provisionally accepted the application.

'He then would have been transferred through to them, and it would have been clear that he was being transferred to a third party. The application for a guarantor loan would have happened with them.’

But Zeke didn't understand that Cash Lady was a broker and not a lender, or that he was being transferred from Cash Lady to another company mid-way through his application.

I suspect a lot of the population would struggle to understand this difference.

Additionally, Zeke set up an email address to apply for the loan and over the next few days he was inundated with emails from similar lenders.

Payday lenders have faced much scrutiny over the past year. The Office of Fair Trading has referred the industry to the Competition Commission and the Financial Conduct Authority are set to take over regulation of the sector next April.

I think there is an important lesson here for the government and regulators – it’s not just the lenders that need tighter regulation, it’s brokers, just like Cash Lady.

These firms do not lend money but instead push punters onto loan firms and choose ‘celebrities’, like Katona, to advertise them. They deserve as much scrutiny as the lenders themselves.

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