The Financial Ombudsman Service (FOS) has reported a significant rise in the number of complaints being made about payday lenders, and has also revealed that a high proportion of these complaints have been upheld.
The FOS will publish the final complaints statistics for the financial year April 1 2012 to March 31 2013 in its annual review, expected to be published later in spring 2013. The April/May issue of the FOS newsletter, Ombudsman News, said that it was receiving 30 to 40 payday loan complaints every month, which represents a 75% increase on the previous year. Official figures already released for the first three quarters of the 2012/13 financial year, i.e. the period from April 1 to December 31, show that 387 payday loan complaints were received by the FOS in this nine month period, compared to 296 in the full year 2011/12.
The FOS continues to find in the customer’s favour in a significant majority of cases. 72% of the payday loan complaints to date in 2012/13 have been upheld, although this is down from the equivalent figure of 81% in 2011/12.
The newsletter said that many of the complaints concerned the lender’s use of Continuous Payment Authority (CPA), a facility which allows payments to be taken from a borrower’s bank account whenever the lender sees fit to do so. The FOS also reported concerns about affordability assessments, debt recovery practices and customers saying they had never taken out a loan for which they were being pursued.
The newsletter contains a number of case studies of customers who contacted the FOS about their payday lender. These cases include a lender who tried to use CPA even though the borrower had told them that she was seeking professional debt advice; a lender who pursued a man for a debt after a loan was set up in his name by fraudsters; and a lender who took a payment from a man’s bank account without his knowledge in respect of a loan taken out by his son.
However, despite the increase, payday loans still represent a very small proportion of the complaints the FOS receives. In the nine months to December 2012, the FOS received 341,666 new cases, 244,873 of which concerned payment protection insurance.
The FOS is an independent body that adjudicates on financial complaints where the customer does not agree with the response received from the firm to their complaint. It can make legally binding orders on companies to pay compensation to their customers.
Debt charities are also reporting increases in the numbers of customers contacting them regarding payday loans. StepChange reported a 109% rise in 2012, compared to the previous year, in the number of its clients who held payday loans.