May 28, 2013
Payday loan companies have loaned money at skyrocketing interest rates to people with mental health issues, those under the age of 18, and customers who were drunk when they took out the loan, reveals debt counseling charity.
Citizens Advice (CA), which led the investigation, said payday lenders were “out of control” and urged the trade watchdog, the Office of Fair Trading (OFT), to ban payday lenders. irresponsible companies.
An analysis of 780 cases reported to CA between November 2012 and May 2013 found evidence of reckless practices that included arranging loans with interest rates of up to 4,000 percent for those under 18, people with mental health problems and some drunk people at the time.
The Citizens Advice report comes as the OFT has threatened to shut down major payday loan companies if they cannot prove their best practice.
In June, he is expected to announce whether the payroll market will be subject to an investigation by the Competition Commission.
“12 week delay to improve”
However, the AC said companies still carried out inadequate checks on borrowers, which led to people being sued for loans they did not take and harassment of distressed borrowers at home for. humiliate them and make them pay.
Some companies take more than what is owed to them from bank accounts without repaying the money, and others have emptied borrowers’ bank accounts without warning using a payment agreement called a “Continuing Payment Authority” (CPA). according to AC.
In addition to reviewing 780 loans in detail, CA also reviewed customer feedback on 2,000 payday loans from over 100 lenders.
In 87 percent of the cases analyzed, borrowers were not asked to prove that they could afford the loan and 84 percent of people with repayment problems were not given a chance to see their interest and blocked loads.
Improve explanations of the cost of the loan
One of the areas where the charity found payday lenders improved was the explanation of the cost of a loan.
In 79% of the 2,000 customer feedback cases, the lenders were clearer about the total cost of the loan.
OFT’s own research into the payday lending industry found that lenders seem to depend on clients who cannot afford to repay their loans on time.
Some payday loan companies have signed up to new codes of practice in recent months to improve affordability controls and ensure borrowers understand the costs involved.
The Consumer Finance Association (CFA), which represents about 70 percent of short-term lenders, produced a report on their clients to a gathering of MPs, who insisted they were generally “financial smart and savvy consumers”.
Strict code of practice
Russell Hamblin-Boone, Chief Executive Officer of CFA, said in response to the CA’s investigation:
“We have implemented a strict code of practice [launched 12 May] which is independently monitored and enforced to ensure our members do not engage in the type of practices highlighted by the Citizens Advice survey.
“These measures raise standards and protect the vast majority of clients who, let us remember, never seek help from Citizens Advice because they have no problems repaying their loans.”
An OFT spokesperson said: “Of the 50 payday lenders that were inspected during the compliance review, 48 confirmed that they will provide the OFT with proof that they are fully compliant, while two gave up their licenses.
“The OFT also announced that it has opened formal investigations into the practices of three payday lenders and, in addition, three payday lenders have also had their licenses revoked since the industry review in March.”
Short-term loan companies flourished on the rising cost of living in Britain. Their total annual loan has more than doubled from £ 900m in 2008 to around £ 2bn.