08Oct

National advice charity Citizens Advice (CitA) has reported a significant increase in the numbers of people contacting it with debt problems relating to guarantor loans, logbook loans and rent-to-own credit.

CitA dealt with 2,272 people seeking assistance with these products in the period from April to June 2016, which represents a 16% increase when compared to the equivalent figure of 1,962 for the same period in 2015. The numbers seeking assistance with guarantor loans have risen by 45%, and given that CitA is twice as likely to be contacted by the guarantor rather than the actual borrower, the charity is concerned that firms are failing to clearly inform guarantors of their obligations under this type of loan.

Separate figures show that in the last 12 months CitA has been contacted by 7,500 people seeking help with rent to own debt issues, 1,100 people with guarantor loan problems and 460 with issues regarding logbook loans.

The press release gave examples of how people with all three types of debt could end up paying more in repayments than the amount of their loan.

Under legislation introduced in January 2015, no payday loan borrower can ever be asked to repay more in interest and charges than the amount they have borrowed. In light of the numbers contacting the charity, CitA has repeated its call for the Government to impose a similar charge cap on other forms of high-cost credit.

The organisation has reported, however, that payday loan debt problems have fallen. Since the introduction of the charge caps, the number of people contacting CitA with issues regarding payday loan debts has fallen by 53%.

Gillian Guy, Chief Executive of CitA, said:

“High cost credit problems are growing in other parts of the market [other than payday lending].

“People are struggling with debt problems from logbook loans, guarantor loans and rent to own. But is not just the rates of interest and charges that are causing difficulties. Poor business practices – like signing people up as guarantors without explaining what this means or charging a much higher price for rent to own goods – are adding further misery.

“The cap has been effective in reducing the number of debt problems caused by payday loans – so it is worth considering if it should be extended to cover other types of high cost credit.

“It is important that loans are only offered to people who can afford to repay them. The FCA currently issues guidance to lenders saying they should perform rigorous financial checks on potential borrowers to make sure they can afford to pay back their loans, but the FCA should now consider making this into a compulsory rule for all lenders of high-cost credit.”

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.