11th June 2015
The number of complaints about payday loans reported to Citizens Advice has almost halved since the City watchdog introduced new laws.
The charity organisation helped with 5,554 payday loan problems in January to March 2015, a 45% drop on the same period in 2014.
The national charity believes the decline began in April 2014, when new regulations were introduced by the Financial Conduct Authority. These rules included among others things, a limit on the number of times a loan could be “rolled over”, and limits on advertising. Subsequently in January this year it introduced a cap on loan charges.
While Citizens Advice welcomes the reduction, it said it is important the focus remains on the industry to ensure problems continue to decline.
It is also calling for other high cost credit products, such as logbook and guarantor loans, to come under similar scrutiny after the charity found they are causing significant harm to some borrowers.
Nearly 53,000 logbook loans were taken out last year, up 44% on 2011. Issues reported to Citizens Advice include high interest rates, excessive fees and charges and aggressive behaviour when collecting debts.
Borrowers can take out a guarantor loan by getting a friend or family member to act as their ‘guarantor’. This means if the borrower can’t repay the loan the guarantor has to.
Analysis from Citizens Advice suggested proper checks are not being carried out to assess that the guarantor has actually agreed to back the borrower or can afford the repayments if the borrower stops paying.
A new Citizens Advice study out later this month based on interviews with major high street banks, found a quarter of payday loan users could have borrowed money from their own banks instead of payday lenders.
Citizens Advice chief executive Gillian Guy said: “Irresponsible high-cost lenders are sentencing people to a life in debt. The drop in the number of problems reported to us about payday loans is good news for consumers and demonstrates the impact a strong stance against irresponsible lending can have on people’s lives.
“It is important to remember that it is not just payday loans that have blighted people’s finances. Other high cost lenders like guarantor or logbook loans are also causing havoc with people’s finances.”