Citizens Advice exposes payday lenders’ failings as OFT closes in on unscrupulous lenders
New evidence from Citizens Advice finds 7 in 10 put under pressure to extend loan.
Citizens Advice is urging the OFT to take tough and immediate action against payday lenders as new evidence reveals lenders are pressurising struggling borrowers to extend loans, lending to people under 18 and harassing people in debt.
The new findings, from the Citizens Advice’s payday loan tracker and evidence from across the service, are revealed today, Tuesday 28 May, 12 weeks since the OFT launched its investigation into the payday lending industry.
Citizens Advice found that 12 in 14 promises to treat customers fairly were broken. It also found 3 out of 4 people struggled to repay the loan (1,539 cases) with 84% saying lenders did not offer to freeze interest rates or charges, despite vowing to do so.
Citizens Advice wants the OFT to use its powers to immediately ban payday lenders its investigation finds are causing harm to borrowers.
An in depth analysis of 780 cases reported to the Citizens Advice consumer service between 26 November and 13 May revealed evidence of:
- Irresponsible lending: lending to under 18s, people with mental health issues and people who were drunk at the time.
- Inadequate checks on borrowers: chasing people for debts when the loan had actually be taken out by someone else using their identity.
- Taking more than owed: lenders taking more than they are owed then refusing to refund it.
- Draining bank accounts: misuse of Continuous Payment Authorities by persistently raiding bank accounts without any warning leaving no money to live on.
- Harassment: pestering people who are in debt and also hounding others at the same address in a bid to shame the borrower.
- Refusal to agree to repayment plans: not helping people who are struggling to repay by agreeing a reasonable repayment plan.
During the same six month period 24,575 people sought online advice about payday loans from Citizens Advice.
The Citizens Advice payday loan tracker studied customer feedback on 2,000 payday loans, from 113 different payday lenders, from 26 November 2012 to 17 May 2013. The tracker monitors whether lenders are abiding by their own customer charter.
The study did find that lenders are being much clearer about how much loans will cost in total (79%).
But major failings unveiled by the study include:
- 87% didn’t ask the borrower to provide documents to prove they can afford to repay the loan.
- 58% did not warn that a payday loan should not be used for long-term borrowing or to deal with money troubles.
- 84% of people who had repayment problems were not offered the chance to freeze interest and charges when they were struggling to pay it back.
- 7 in 10 (72%) actually put pressure on people struggling to repay to extend their loan.
- 83% did not highlight the risks of extending the loan to those already in difficulties with their payday loan.
- 95% did not check that borrowers with repayment problems could afford to pay back the loan if it was extended.
Citizens Advice Chief Executive Gillian Guy said:
“The payday loan industry is out of control and is acting as a law unto itself. It has showed a complete disregard for its customers. Many have been driven into debt by irresponsible lending and their debts ballooned as lenders put pressure on them to extend the loans.
”The OFT has an opportunity to wipe out the distress caused by this industry and make sure it is transformed into a responsible short-term credit market. It is vital that, following the investigation, the OFT takes swift action to protect consumers from the harm caused by these unscrupulous lenders.”
Last month Citizens Advice called on high-street banks to offer personal micro-loans as a responsible alternative to a payday loan.
Citizens Advice has used its extensive evidence to expose the practices of payday lenders and take action against the industry:
- In February Citizens Advice reported four payday lenders to the OFT and called for them to be immediately banned from trading.
- Last August Citizens Advice provided evidence on the payday loan industry to the OFT’s investigation which saw lender MCO Capital Limited stop trading in March 2013.
Citizens Advice is running the payday loan tracker survey until the end of November 2013. Payday loan customers can provide their feedback online at http://www.adviceguide.org.uk/dialogue_payday_loan_survey
Notes to editors
- Citizens Advice analysed customer feedback on 2,000 payday loans from over 113 different payday lenders. Feedback was provided between 26 November and 17 May through an online survey, questionnaires in bureaux and face to face surveys on high streets. The study was promoted widely through national media and other organisations including Nationwide, Which?, Toynbee Hall and other debt charities. The tracker monitors whether lenders are abiding by their own customer charter.The below table identifies responses to each question in the payday loan survey.
Citizens Advice survey questions to gather evidence on compliance to the code Loans that did not comply To make clear how much a loan will cost in total 21% Explain how the loan will be repaid 16% Establish if the borrower can afford to pay back the loan 64% Ask the borrower to provide documents to prove they can afford to repay the loan 87% Warn that a payday loan should not be used for long-term borrowing or to deal with money troubles 58% Explain how to make a complaint 81% Make it easy to contact them if the borrower is struggling to repay 55% When people are having difficulty repaying, treat them sympathetically 82% Freeze interest and charges for people struggling to repay loans 84% Tell borrowers that free debt advice is available from charities 92% Don’t put pressure on borrowers to extend loans 72% Highlight the risks of extending a loan 83% Explain costs of extending a loan 65% Check borrowers could afford to pay back the loan if it was extended 95%
- The below table reveals the promises lenders failed to keep, based on evidence from the Citizens Advice payday loan tracker, CABs and the consumer service.
Lenders’ promises Is industry sticking to promise? 1 Act fairly, reasonably and responsibly in all our dealings with you. No 2 Not pressurise you to enter into any loan agreement or to extend (‘roll over’) the term of your existing loan agreement. No 3 Tell you that a payday or short-term loan should be used for short-term financial needs and is not appropriate for long-term financial borrowing or if you are in financial difficulty No 4 Tell you how the loan works and the total cost of the loan (including an example of the price for each £100 borrowed, together with fees and charges) before you apply. Yes 5 Check whether the loan is suitable for you taking account of your circumstances. No 6 Carry out a sound, proper and appropriate affordability assessment and credit vetting for each loan application and before the loan is extended (rolled over), to check you can afford the loan. No 7 Explain in general terms what types of information we will consider in making a decision, if you ask us to. Unknown 8 Explain how we will communicate with you during the term of the loan, how payments will be deducted from your bank account and how you can contact us by phone, email or online. No 9 Set out clearly how continuous payment authority works (if we use it) and your rights to cancel this authority, so you can decide if this type of repayment is acceptable to you. We will remind you that if you cancel, you will still owe any outstanding debt and will need to provide an alternative method of repayment on the due date to avoid going into default. No 10 Always notify you by email, text, letter or phone at least three days before attempting to recover payment using continuous payment authority on the due date. This notice will ask you to contact us if you are in financial difficulty and cannot repay. No 11 Deal with cases of financial difficulty sympathetically and positively and do what we can to help you manage what you owe. No 12 Freeze interest and charges if you make repayments under a reasonable repayment plan or after a maximum of 60 days of non-payment. No 13 Tell you about free and independent debt counselling organisations who can also help you. No 14 Tell you about our complaints-handling procedure when you take out a loan or whenever you ask us to. We will also include details about our complaints procedure on our website or make them available at our business premises (where appropriate). No
- The Citizens Advice service comprises a network of local bureaux, all of which are independent charities, and national charity Citizens Advice. Together we help people resolve their money, legal and other problems by providing information and advice and by influencing policymakers. For more information in England and Wales see www.citizensadvice.org.uk
- The advice provided by the Citizens Advice service is free, independent, confidential, and impartial, and available to everyone regardless of race, gender, disability, sexual orientation, religion, age or nationality. For online advice and information see www.adviceguide.org.uk
- Citizens Advice Bureaux in England and Wales advised 2.1 million clients on 6.9 million problems from April 2011 to March 2012. For full 2011/2012 service statistics see our quarterly publication Advice trends
- Out of 22 national charities, the Citizens Advice service is ranked by the general public as being the most helpful, approachable, professional, informative, effective / cost effective, reputable and accountable (nfpSynergy’s Brand Attributes survey, May 2010).
- Most Citizens Advice service staff are trained volunteers, working at around 3,500 service outlets across England and Wales.
Notes to editors:
- The Citizens Advice service comprises a network of local bureaux, all of which are independent charities, the Citizens Advice consumer service and national charity Citizens Advice. Together we help people resolve their money, legal and other problems by providing information and advice and by influencing policymakers. For more see the Citizens Advice website.
- The advice provided by the Citizens Advice service is free, independent, confidential, and impartial, and available to everyone regardless of race, gender, disability, sexual orientation, religion, age or nationality.
- To find your local bureau in England and Wales, visit citizensadvice.org.uk. You can also get advice online at adviceguide.org.uk
- You can get consumer advice from the Citizens Advice consumer service on 03454 04 05 06 or 03454 04 05 05 for Welsh language speakers
- Citizens Advice Bureaux in England and Wales advised 2.3 million clients on 5.4 million problems from October 2013 to September 2014. For full 2013/2014 service statistics see our quarterly publication Advice trends
- Citizens Advice service staff are supported by more than 21,000 trained volunteers, working at over 3,000 service outlets across England and Wales.