StepChange Debt Charity welcomes OFT findings on payday loan industry
6 March, 2013
Following today’s report from the Office of Fair Trading revealing deep and systemic problems within the payday lending sector, StepChange Debt Charity is urging the trade bodies and their members to show that they are serious about addressing the problems that exist within the sector. Otherwise, regulators will have no alternative but to take further action to ensure that consumers are no longer subject to poor industry practices.
StepChange Debt Charity supports the decision to refer the industry to the Competition Commission. It is now essential to establish whether the whole or parts of the market are failing consumers and taking advantage of those who are financially vulnerable.
StepChange Debt Charity has identified a number of serious issues relating to payday loans which cause consumer detriment:
- Rising balances – the average amount owed on payday loans by StepChange Debt Charity clients now stands at £1,657. The average amount owed is now more than the average client’s net monthly income (£1,379), which shows that payday loans can trap people in a cycle of dependency on high-cost credit.
- Multiple payday debts – StepChange Debt Charity has seen dramatic increases in the number of people seeking help with five or more payday loan debts. In 2012, the charity helped 7,221 people with five or more payday loans, this number stood at just 716 in 2009. Too many people are falling into the trap of taking out new payday loans to existing payday debts.
- Misuse of Continuous Payment Authority (CPA) – StepChange Debt Charity has seen numerous examples of poor practice by lenders in relation to CPA. Including instances where money has been taken from people’s accounts leaving them unable to cover food and housing costs.
- Aggressive collection practices – StepChange Debt Charity has seen numerous examples of poor collection practices, including threatening and harassing telephone calls and misrepresenting legal powers.
The Financial Conduct Authority (FCA) must ensure that is clear on how it intends to address such issues within the market when it assumes control of consumer credit in April 2014.
StepChange Debt Charity has been engaging with the payday loan industry on improving its standards, including identifying early signs of financial hardship and referring those in difficulty to advice agencies. A number of firms have shown positive commitments to improving their practices.
StepChange Debt Charity external affairs director Delroy Corinaldi said: “Today’s report is a stark wake-up call to the payday loan industry.
“We urge the government to ensure that in the coming year the OFT has the resources it needs to follow up this excellent compliance review with the actions needed to protect consumers.”