1.5 million took out loans to fund Christmas

Consumers will remain vulnerable to fast-finance firms until a crackdown on credit charges in 2014

In a Which? survey, 92 per cent of people said they felt under too much pressure to spend at Christmas (Getty Images)

Payday lenders and high-street fast-finance firms are expected to campaign hard for more customers over the next 12 months before a crackdown on unscrupulous lending, an MP said last night. The warning came as new figures revealed that around 1.5 million people took short-term loans – some at more than 1,000 per cent interest – to get through a recession-blighted Christmas.

In a survey by Which?, 92 per cent of respondents agreed that people feel under pressure to spend too much at Christmas, and almost a quarter (22 per cent) said they could afford to pay for Christmas only by using credit cards and overdrafts. So it is not surprising that payday-loan firms, pawnbrokers and other money shops were able to cash in.

Parliament has approved laws enabling the new Financial Conduct Authority to protect consumers from exorbitant interest rates, but the FCA will not take over regulation of the market until 2014. In the meantime, consumers – including increasing numbers of middle earners – will be left vulnerable, says Stella Creasy, Labour MP for Walthamstow.

The Office of Fair Trading (OFT) might help fill the void when it publishes compliance guidelines for payday-lending firms next month, she added, but coming benefit cuts and stagnant wages are expected to compound people's problems.

"If the OFT sets out what it considers irresponsible it will help the FCA to come in and enforce that much better," said Ms Creasy, who has led the campaign to end legal loan-sharking. "But it is crisis time. I have been saying to people in my constituency: 'If we can get through 2013 we will be all right.' "

Campaigners are pressing the Government to set a limit on the amount to be paid back on loans, to stop people being trapped in a cycle of debt. Surprisingly, perhaps, research has shown that 80 per cent of payday loans were for basics such as food and utilities, and 30 per cent of those who took them out earned between £30,000 and £50,000.

"Lots of people who get payday loans have bank accounts. This isn't an affluence crisis, people just getting money to buy children a Nintendo," Ms Creasy said. "This is a needs crisis. People need the money to eat. They are borrowing because people are trying to keep their houses."

The research by Which? revealed that 46 per cent of people used credit cards, overdrafts, store cards or loans to cover their festive spending, while 36 per cent dipped into savings, taking out £380, on average, to cover bills.

The Consumer Finance Association, which represents many of the big high-street lenders, admitted last night there was a problem but said a new code of conduct introduced last month, including increased transparency of fees and better rules on affordability, would help. A spokesman said: "Our members have gone to a lot of effort and expense to introduce the code of practice, which we hope will make a difference."

A spokesman for StepChange, which offers free debt advice, said the use of loans over Christmas "reflected what we are seeing among the thousands of people who seek our help with debt each week".

He said: "Household budgets have been squeezed by a range of pressures, such as wage freezes and inflation, to the extent that many are now at breaking point."