Payday lenders face investigation into ‘bullying’ debt collection
Citizens Advice’s evidence reveals that payday lenders are harming consumers with widespread irresponsible lending and debt collection practices. The national charity welcomes news that the Financial Conduct Authority will investigate the industry’s debt collection practices.
Gillian Guy, Chief Executive of national charity Citizens Advice, said:
“This is a clear signal that payday lenders’ wilful ignorance of their customers’ financial difficulties won’t be tolerated. The FCA is right to ramp up pressure on lenders who exploit people’s money problems and must turn this into tough consequences where they find instances of unfair and bulling debt collection.
“Lenders’ failure to check a customer’s ability to pay back money traps people in a cycle of debt and leaves borrowers struggling with loan repayments they can’t afford to pay off.
“We help clients who have been harassed at home and at work by lenders or who are struggling with unmanageable repayments despite attempts to sort out their debts. Some people have found themselves without money to get to work or put food on the table after a payday lender used a Continuous Payment Authority to drain their bank accounts out of the blue.
“Launching the review on the first day that they take over new powers shows that the FCA shares our concerns over the risk these practices pose to consumers, and we will be working with them to share our evidence and make sure that consumers are protected.”
Citizens Advice’s payday loan tracker reveals widespread irresponsible practice from the payday loan industry.
Results from the first twelve months of the survey shows that 83% of people said that lenders didn’t treat them sympathetically or offer support when they ran into difficulty, 84% failed to freeze interest payments and only 9% said lenders told them where they could get free debt help.
The first twelve month findings from Citizens Advice payday loan tracker are below. This is from customer feedback on over 4,000 payday loans from over 100 different payday lenders which was provided between 26 November 2012 and 18 November 2013.
| 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 | 17% |
| Establish if the borrower can afford to pay back the loan | 61% |
| Ask the borrower to provide documents to prove they can afford to repay the loan | 88% |
| Warn that a payday loan should not be used for long-term borrowing or to deal with money troubles | 57% |
| Explain how to make a complaint | 81% |
| Make it easy to contact them if the borrower is struggling to repay | 54% |
| When people are having difficulty repaying, treat them sympathetically | 83% |
| Freeze interest and charges for people struggling to repay loans | 84% |
| Tell borrowers that free debt advice is available from charities | 91% |
| Don’t put pressure on borrowers to extend loans | 70% |
| Highlight the risks of extending a loan | 82% |
| Explain costs of extending a loan | 64% |
| Check borrowers could afford to pay back the loan if it was extended | 94% |
Real life case studies
- One woman feared that her job could be at risk after a payday lender repeatedly contacted her boss to try and embarrass her into repaying.
- A single parent turned to CAB when a payday lender called her home at 20 minute intervals several days in a row.
- A CAB client tried to rearrange a loan repayment and was told by her lender that this would need to do this through their website. The system refused to accept her entry, leaving her with no way to change her repayments.
- A CAB in the West Midlands helped a man with mental health problems whose entire wages were taken in three separate instalments on the day he was paid. This left him with no money for essentials and pushed him over £200 into an unauthorised overdraft.
- Following advice from CAB, a man in the North East cancelled his CPAs and negotiated repayment plans with his payday lenders. However, one lender still took the full amount owed, leaving him in dire financial straits.
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.