30th September 2014
One in five payday loan borrowers is not told about the risks of extending the loan, Citizens Advice has warned.
The charity said lenders have been slow to improve their practices, despite the industry’s own promises and pressure to clean up its act.
Its survey revealed that just one in five borrowers struggling to repay their loan had the interest frozen and only a quarter thought the lender treated them sympathetically.
Citizens Advice has found that some payday lenders are making slight improvements when it comes to asking people about their personal finances. Half of customers are now reporting that this is the case, compared to a third previousl
Separate analysis of the charity’s clients with serious debt problems finds that one in eight has a payday loan.
The average payday debt is £1,000, which is often spread across a number of loans.
Tomorrow is the end of the grace period afforded to payday lenders and other providers of consumer credit to adapt to the new regulations brought in by the Financial Conduct Authority (FCA) in April this year.
Some lenders have already ceased trading due to early action from the FCA.
Gillian Guy, chief executive of Citizens Advice, said: “Payday lenders are still not sticking to their word to treat people fairly. While things are moving in the right direction, some payday lenders are still falling far short of responsible lending. Customers need to have the full facts at their finger-tips when making decisions about borrowing.
“Irresponsible behaviour including a lack of proper checks to see if people can afford to pay back loans and pressurising borrowers into extending loans has pushed people deep into debt. The new rules should contribute towards ridding the market of irresponsible lenders, but this won’t be achieved by regulation alone. The FCA needs to use enforcement action make sure firms flouting the rules are not allowed to operate. ”
She believes that demand for short-term credit won’t go away and would like to see growth in the number of credit unions as well as banks offering affordable micro-loans.