Payday loan branded ‘debt sentence’ as 80% struggle to cope with repayments

31st March 2014

Payday loan customers struggling to repay their debt are being left out in the cold as many are not having their interest rates frozen or being warned about the cost of extending the loan despite promises from lenders to do so.

Evidence from UK charity Citizens Advice has found that even though promises made 16 months ago by payday lenders to treat their customers fairly, are not doing so.

Citizens Advice chief executive Gillian Guy says: “A payday loan has become a debt sentence for many of our clients due to irresponsible practices by lenders.  Consumers who are looking for a bit of money to tide them over need a fair and competitive market to engage with not one that seeks to exploit them.”

Of the cases examined by the group, where people struggled to repay, it found that 86% did not have the interest or charges on their loan frozen, a third were put under pressure to extend the loan, while 84% were not told the risks of extending the loan.

In addition, 90% said there were not any checks made when extending the loan and almost two thirds were not told about the cost of extending the loan.

The data is from an analysis of feedback on 1,016 loans reported to the Citizens Advice payday loan tracker between 3 October 2013 – when the FCA announced its proposed rules for payday lenders – and 20 March 2014.  The findings come just days before the FCA is due to take over responsibility for regulating the whole of the consumer credit market on 1 April.

The new evidence also reveals customers are not being given the necessary information about Continuous Payment Authorities (CPAs) – the method many lenders use to collect repayments.

Guy adds: “The stern warning and tough rules from the FCA need to be followed with strong enforcement action.  Lenders found to breaking the rules and harming consumers should be immediately thrown out of the market.

“Citizens Advice continues to deal with people on a daily basis who have been driven deep into debt because of payday lenders’ harmful behaviour.  The FCA listened to the problems our clients have had with payday lenders and acted on our advice, including introducing rules to make sure proper checks are made to assess whether the borrower can afford to repay.  It’s important the FCA doesn’t pull any punches with payday lenders and delivers on its commitment to ensure a fair market for all consumers.”

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