Despite the tough rules, laid down in the Financial Conduct Authority (FCA) rulebook, research by consumer organisation Citizens Advice (CitA) has cast doubt on the extent to which some payday lenders check that applicants can afford to repay the loan.
CitA surveyed 432 consumers between March and July 2016, and 27% of respondents said they had no recollection of any assessment of their financial situation being carried out before they were granted the loan.
The organisation also says that applicants who had no recollection of undergoing a credit check were almost twice as likely to experience repayment difficulties, when compared to those who did undergo this process. 78% of those who could not recall undergoing a credit check subsequently experienced repayment problems.
98% of respondents said it was ‘easy’ to obtain a payday loan.
The CitA press release highlights the extreme example of a man who was granted a payday loan even though his only income was from benefits, he had no permanent address, he had previously been declared bankrupt and he suffered from depression and alcoholism.
A number of respondents reported that their lender had asked for login details to their online bank account, and was using this access to take loan repayments without permission, or even to advance additional funds.
On a more positive note, CitA also reports that the number of people contacting it with debt problems related to payday lending has fallen sharply. Before the introduction of the FCA’s price caps in January 2015, an average of 2,821 people were seeking help with payday loan debt problems, but this has now fallen by 45% to 1,534 per month.
The organisation also says that in the last three years 40% of the payday lending firms have left the market.
Gillian Guy, Chief Executive of Citizens Advice, said:
“Irresponsible behaviour by some payday lenders is trapping people with loans they can’t afford.
“New measures and guidelines from the FCA have helped to clean up the market and the number of people turning to us for help has dropped significantly. But it’s clear some payday loan firms are flouting the FCA’s guidance and selling people loans costing hundreds of pounds that they struggle to pay back.
“The time has come for the FCA to turn its guidance into rules – forcing every single payday lender to carry out rigorous financial checks on potential borrowers to prevent people falling into deepening debt.
Any payday lender not strictly complying with the FCA’s rules and guidance is taking a very big risk. Short-term lenders are under considerable scrutiny from the regulator, and enforcement action has been taken against a number of firms and against at least one individual.
The Financial Ombudsman Service (FOS) has also reported a significant increase in payday loan complaint numbers. 2,729 complaints were made about payday loans during the period from April to June 2016 (the first quarter of the new financial year). The FOS received 3,168 of these complaints during the entire 12 months ending March 31 2016, and just 1,157 in 2014/15, so it appears that customers are becoming more willing to complain about payday lenders.
Furthermore, of the payday loan complaints closed by FOS in the first quarter, a majority (55%) were decided in favour of the customer. This means that lenders that fail to treat customers fairly are regularly being asked by FOS to pay compensation.
Lenders need to make sure they make responsible lending decisions, that they provide all necessary information to their clients and that they treat borrowers in arrears with compassion.
The information shown in this article was correct at the time of publication. Articles are not routinely reviewed and as such are not updated. Please be aware the facts, circumstances or legal position may change after publication of the article.