CONTROVERSIAL payday lenders are siphoning millions out of Oxfordshire every year, with the cash going straight "from the poor to the rich".

According to the Oxfordshire Credit Union about 12,000 people in the county are likely to have borrowed from firms such as Wonga, QuickQuid and The Money Shop.

The organisation has warned that about £12m could have been borrowed through such loans, which typically come at extremely high interest rates.

Chairman Mark Luntley said the figure was accurate if Oxfordshire, whose population accounts for one per cent of the UK total, is representative of the rest of the country.

He said: "I think that's actually a conservative figure. The last available data was from 2010 and payday lenders have been increasing since then.

"When you look at who the lenders are, forget the friendly faces they put forward in certain advertising. The money is going from the poor to the rich."

The payday loan sector typically attracts people on incomes of £25,000 or less who are unable to get access to credit from traditional lenders.

Firms have come under fire – and increased regulation – in recent years for creating a "debt trap" that can impact on both individuals and the wider community.

Mr Luntley said: "Wonga are now offering loans at 1,000 per cent rather than 4,000 per cent. Some of the high-cost lending has come down but it's still hugely expensive.

"What happens to people who get into debt? It's a driver of mental health issues and homelessness, which our really stretched public services pick up on."

The credit union has noted that repayments made by debtors often leave the local area, as most owners of payday lenders live in tax havens such as Delaware in the USA.

It has calculated if £12m were borrowed in Oxfordshire from the payday loan firm Provident over 32 weeks, about £1.5m would be paid in interest in Oxford and £7m across the county on top of the original spend.

Mr Luntley said that not enough people were aware of the existence of credit unions, which also offer short-term 'emergency loans' but expect members to save as well.

He said: "It's about trying to get people to save and borrow. It was only in the 1960s that the first credit union was established in the UK."

A report for Oxford City Council last year recommended that the council support credit unions and incorporate their work "encouraging savings and providing access to affordable borrowing sources instead of high cost alternatives such as payday loans" into its own services.

The Consumer Finance Association, which represents payday lenders, pointed out that the figures were only speculative and that interest rates are set and regulated by the Financial Conduct Authority.

CEO Russell Hamblin-Boone said: “It is disappointing that Oxfordshire Credit Union feels it is appropriate to use ludicrous figures that are over six years old and were disputed at the time. 

"Since 2014, the payday loan sector has gone through an evolution and is now regulated by the Financial Conduct Authority, which we would expect the credit union to be aware of. 

"Since the regulations were introduced the numbers of loans issued have declined significantly. Under the new regulations there is a price cap on the interest, so no one would pay the 1,000 percent the credit union inaccurately claims. 

"Short-term lenders form a valuable part of the financial landscape for some people who are excluded from mainstream financial sector.  Before a loan is issued members from the Consumer Finance Association carry out stringent affordability checks to ensure each customer can afford the loan and that they know exactly how much they will be required to pay back, in the same way you would with a credit card or car loan.“