IT HAS been a decade since the beginning of the credit crunch, when hard-up consumers quickly became hooked on expensive loans to stay afloat. But is short-term, high-cost credit now yesterday's problem?

Payday lenders like Wonga, which used to quote a typical APR rate of 4,214 per cent, have been forced by regulators to cap fees at 0.8 per cent of the loan’s value per day, with customers now paying no more than twice the total amount.

So far, the crackdown seems to be making a difference. More than a third of payday lenders have shut since 2013, with Wonga’s most up-to-date results showing a pre-tax loss of £80.2 million in 2015.

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The Financial Conduct Authority reckons the fee cap has saved 760,000 borrowers £150m a year since it was introduced in 2015, but the controversy will not go away. The Financial Ombudsman Service received more than 10,529 complaints about payday loans in the 2016/17 financial year - a 227 per cent rise on the previous year. The Ombudsman said many of the complaints are historic and reflect a “growing confidence to come forward”.

Policy and communications adviser Olivia Arasakesary said: “These complaints are being brought by people from a variety of backgrounds, including those whom society may not view as vulnerable, such as teachers, nurses, vets and business analysts.

“Many people who contact us have taken out more than one loan and it’s not unusual to see complaints involving 20 to 40 loans. But 10 to 20 loans is typical for a two-year 'relationship' with a payday lender.”

This occurs because borrowers can easily get into a “trap” where they can only repay a loan by taking out another, explained Sara Williams, a Citizens Advice Bureau adviser.

“They either roll the loan or repay, then borrow again shortly after - sometimes even on the same day,” she said.

This means many lenders are failing to meet the regulator’s criteria for affordable loans, as customers should be able to repay on time without undue hardship and without borrowing more.

If you think you were sold an unaffordable loan, you can go to the Ombudsman to claim a refund if complaining to your lender gets you nowhere.

The success rate for complaints in the first quarter of 2017 was 68 per cent, which Ms Williams described as “stunning”.

“No other category of complaints gets over 50 per cent [of complaints upheld],” she said. “Payday loans aren’t meant to be used for long-term borrowing. So it’s common for the Ombudsman to decide that, after you have borrowed continuously for a while, the lender should have realised you were in trouble and either stopped lending or asked more about your personal finances to check the loans were affordable.”

Ms Williams has helped thousands of customers successfully claim refunds for payday loans through her Debt Camel blog (debtcamel.co.uk), with many cases relating to loans granted before the fee cap was introduced.

“Many lenders have switched to three or six months loans - but these are still often unaffordable for people on average incomes or below,” she said.

The Scottish-based Carnegie UK Trust has also questioned the FCA’s claim that the payday loan cap has failed to push customers towards so-called “loan sharks”.

Carnegie associate Niall Alexander said: “It’s hard to reconcile [the FCA’s] optimism with its own reporting, which identifies around 40 illegal websites that are clones of either authorised or pending sites, or are sites that sound legitimate but are in fact illegal…suggesting that the practice of illegal lending or nefarious activities to con low-income borrowers is far from uncommon and not a stereotyped view of a 'bloke down the pub'.”

Mr Alexander also noted that vulnerable consumers who are forced to cut costs after being turned down for credit risked real hardship, with Citizens Advice Scotland reporting a rise in those defaulting on rent, council tax and utility bills. He called for more support to be given to the community finance sector, which occupies only a “tiny proportion” of the UK lending market.

“Many credit unions struggle to lend small sums to those on the lowest incomes as the administrative and risk costs of doing so are not sustainable within their interest rate levels,” he said.

“Sustainably priced not-for-profit alternatives need support, marketing, better use of data, increased understanding from regulators and access to loan capital.”

However, since the Carnegie UK Trust set up the Affordable Credit Action Group in 2016, the number of Scottish local authorities that host major community development financial institutions (CDFIs) for borrowers has risen from one to six. Success stories include Scotcash, which opened its first Edinburgh branch this week.