National advice charity Citizens Advice (CitA) has submitted a report to the Financial Conduct Authority (FCA) highlighting its concerns over doorstep lending firms.
CitA says it believes more than 1.3 million people in the UK use doorstep loans, borrowing on average around £500 each time. These loans usually involve a collector visiting their home each week to collect payment. The charity said it was contacted by 23,000 consumers in 2016 who were seeking help with issues related to doorstep loans.
CitA has three main concerns with the activities of doorstep lending firms:
• Intimidating debt collection practices – the press release mentions:
o A man whose lender called on the day his son died, but still refused to leave until a family member had visited an ATM to withdraw cash to make the repayment
o A woman who was pursued for repayments while in hospital being treated for a stroke
• Inadequate affordability checks
• Putting pressure on those already struggling with debt repayments to take out additional loans
FCA rules say that the two key elements of a creditworthiness assessment are the customer’s ability to make the required repayments over the term of the agreement and the potential for the customer’s commitments under the credit agreement to have an adverse impact on their financial situation.
An affordability assessment should go beyond whether the customer can afford the repayments. They may be in a position to make repayments, but if doing so would have a significant adverse effect on their financial situation, then the proposed credit is unlikely to be suitable.
Firms should also note that the need to act in customers’ interests and treat them fairly applies just as much in a debt collection situation as in any other dealings with customers.
In the report to the FCA, the charity makes a number of recommendations, including:
• A charge cap on doorstep loans and other forms of credit, similar to that which currently applies to payday loans
• New guidance fir firms on assessment of affordability, to ensure responsible lending
• A limit on the number of times a doorstep loan can be re-financed – again a limit on this already applies to payday loans
• A review of the collection methods used by doorstep lenders
• An outright ban on doorstep loans being sold via cold calling
• A requirement for consumers to be informed of the commission amounts doorstep lenders receive for collecting repayments
Citizens Advice Chief Executive Gillian Guy, said:
“Some doorstep lenders are putting people at risk of escalating debts with their irresponsible actions.
“The personal nature of doorstep loan selling and debt collection can put customers in a vulnerable position. Our evidence shows some lenders are taking advantage of that relationship and causing serious harm to borrowers by turning up unannounced or putting clients under pressure to repay or take on more debt.
“It’s important there is strong regulation of high cost credit markets to make sure companies put the needs and interests of consumers at the heart of their services. The FCA’s intervention drastically reduced problems in the payday loan market – we now want to see similar protections introduced for consumers using other high cost credit products, including doorstep loans.”
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.