New Report Details Sharp Rise In Complaints Against Payday Loan Companies
The Financial Ombudsman Service, the UK’s official financial conduct watchdog, claims that over 10,000 complaints were lodged against payday loan companies between 2016 and 2017, a rise of 227% from 2015 to 2016.
The number of payday loan complaints were disclosed in the Financial Ombudsman Services’ annual review for 2016-2017. They come despite tough new regulations currently and soon-to-be imposed on ‘high-cost short-term’ loan firms by the Financial Conduct Authority (FCA). Complaints related to PPI however topped the charts by volume again this year at nearly 170,000 recorded between 2016 and 2017.
Megan Webster, Policy and Communications Manager for the FOS, told DIGIT: “One of the biggest stories of the year is the number of people who’ve contacted us with problems about short-term credit and debt including payday loans. In many ways, it’s a positive thing that people are coming forward to say they need help and don’t feel they’ve been treated fairly.”
Borrowing On The Rise
The staggering rise in payday loan complaints forms part of a larger picture of accelerated consumer borrowing in the UK – a trend that both the FCA and Bank of England have previously warned about. According to the BoE, the longer interest-free periods on credit cards and higher loan limits has created a rate of expansion in consumer credit unseen in the UK since 2005. While credit accounts for a much smaller proportion of bank lending than mortgages, the Bank of England’s Financial Policy Committee warned in April that consumers were more likely to default on these credit payments in an economic downturn. For comparison, last year UK banks had £19 billion worth of irregularities on credit cards, versus £12 billion on mortgages.
The FOS claims that irresponsible lending to individuals who are old, disabled or are vulnerable because their circumstances have rapidly changed can lead to multiple payday loans being taken out by one person. With the annual percentage rate being very steep compared to other forms of repayment. It is not uncommon for people to take out short-term loans just to pay for previous loans. Megan told DIGIT: “Many people who contact us have taken out more than one loan – in some cases, up to 20, often taken out in quick succession.” According to the National Audit Office, 8 million UK consumers are currently ‘over-indebted’.
Regulation & Responsibility
But pressure is mounting on companies to begin lending more responsibly. Commenting on irresponsible lending, Megan said to DIGIT: “…in around six in ten cases this year, we decided that lender in question hadn’t acted fairly – for example they didn’t do enough to make sure their customer would be able to repay what they owed.” The FOS report claims that this 2-in-3 success rate underscores the importance of organisations such as the Financial Ombudsman Service in assessing the wider landscape of vulnerability beyond more visible signs.
The FCA began regulating customer lending in April 2014, and has since then introduced a price cap and risk warnings for borrowers, as well as imposing restrictions on monthly payment rollovers. The most drastic of these changes was the price cap for consumers, confirmed in November 2014, which ruled that customers would never repay more than double what they had originally borrowed. Caroline Wayman, Chief Financial Ombudsman of the FOS, said in the report: “The FCA’s action on high-cost short-term credit has had an impact – and we’re generally looking into complaints about borrowing that pre-date its tougher rules. However, taken together with wider insight into consumer indebtedness, it’s clear that financial difficulties and financial exclusion – and the vulnerability they can both bring and result from – remain very current issues.”