In early June 2014, financial watchdog the Financial Conduct Authority (FCA) issued the results of its research into consumer experiences of logbook lenders, payday lenders and debt managers.
The research was conducted on the FCA’s behalf by research agency ESRO in November and December 2013, which was before the Office of Fair Trading’s compliance review into payday lending, and before the FCA assumed responsibility for regulating the areas covered by the study and introduced new rules. Nevertheless, firms in all three sectors are advised to take note of the findings and consider whether any of the same criticisms might be made of their firm.
ESRO surveyed 15 payday loan customers, 20 logbook loan customers and 25 debt management customers (including nine customers of non-fee charging debt management providers) located throughout the UK.
Following this research, it was logbook lenders who came in for the strongest criticism from the FCA.
Christopher Woolard, director of policy, risk and research at the FCA said:
“People who use logbook loans are often in difficult circumstances with few other borrowing options. The last thing that should be happening is for them to be squeezed yet more or even threatened, but that is what our research has found. Our new rules give us the power to tackle those firms found not putting customers’ interests first and remove them from the market if they don’t improve. Logbook lenders should consider this as fair notice to improve and put their customers first or we won’t hesitate to take action.”
Evidence was found of logbook lenders:
- Conducting inadequate affordability checks
- Encouraging borrowers to fabricate income details
- Unfairly pressurising customers to take out loans
- Failing to disclose required information such as Annual Percentage Rates (APRs)
- Concealing key information in small print within lengthy loan documentation
- Adopting overbearing practices when trying to re-possess vehicles – one extreme example cited in the report is that of a customer who had their car re-possessed while driving and was left stranded at the roadside.
The majority of logbook loan borrowers surveyed said they experienced difficulties in meeting their repayment obligations.
Issues identified regarding debt managers included:
- Poor levels of training and competence within firms
- Unsuitable or poor advice being given
- Failing to explain charges sufficiently clearly
Issues identified regarding payday lenders included:
- Unwanted marketing messages
- Inadequate affordability and credit checks – indeed some respondents suggested that the most thorough check carried out by the lender was to ensure that their debit card details were correct, and some suggested that the process of obtaining a loan was surprisingly easy
- Encouraging customers to roll over and extend loans
- Not engaging sufficiently with customers in financial difficulty
- Customers managing to obtain payday loans while drunk
- Imposing unfair terms and conditions, such as requesting that the loan is excluded from any future debt management arrangement
Very few payday loan customers said they paid attention to the APR when considering a loan, and instead focussed on the level of the final payment due. Speed and convenience were more important than any cost information for many borrowers.
Many respondents were using payday loans to meet regular expenditure, something which gives rise to concerns over borrowers becoming trapped in a debt cycle.
No figures are contained in the report as to exactly how many customers had the experiences described, and in most cases the report uses the terms ‘some customers’ and ‘many customers’ when describing the findings.