Payday lenders have long been criticised for their extortionate interest rates and apparent ease of getting people into increasing levels of debt, but now they're coming under fire from another angle – their debt collection practices.
According to figures from the Office of Fair Trading, one in six complaints is in relation to how debts are collected. The Financial Conduct Authority (FCA) has also reported that more than a third of payday loans are repaid late or not at all, but they've found that those who are struggling with those debts might be put under extra pressure from lenders who don't treat them with the sensitivity or fairness required.
As such, the FCA is launching a full-scale review into the debt collection practices of payday lenders, paying particular attention to how they manage borrowers in arrears. Once trapped in the cycle of payday debt it can be incredibly difficult to get out, which is why the review will focus on how those lenders treat customers in financial difficulty.
This will include looking at how they communicate with those borrowers and how they propose to help them regain control of their debt, as well as how sensitive they are to each customer's situation. As it stands, a lot of lenders are distinctly lacking in these areas, and often pile on the pressure or call in debt collectors instead of offering viable solutions.
Unfortunately it's a situation that a lot of people find themselves in. Even though they realise that payday lenders aren't the best option, sometimes they can seem like the only solution – particularly for those who have been declined for credit elsewhere, or if they only need a small amount to pay the bills that month.
It doesn't need to be the only way though. Make sure to consider the options using our loan calculator to find a much better value alternative and ensure you're not sucked into the cycle of payday debt, and take heart in the fact that the FCA's new rules could mean fewer people will have to struggle unnecessarily.
The review will be one of the first actions the regulator undertakes when it takes control of the consumer credit industry in April, and as part of that it'll take a close look at the culture of each firm to make sure they've got the consumer as their focus, rather than profit. The FCA has already set out a range of new rules intended to tackle poor practice in the area, with the industry as a whole committing to back the ideas and make the necessary changes.
Commenting on the review, the FCA's Martin Wheatley said: "We will be looking specifically at how firms treat customers struggling with repayments. These are often the people that struggle to make ends meet day to day, so we would expect them to be treated with sensitivity, yet some of the practices we have seen don't do this.
"Our new rules mean that anybody taking out a payday loan will be treated much better than before… There will be no place in an FCA-regulated consumer credit market for payday lenders that only care about making a fast buck."
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Read our guide to 12 steps to stay debt free in 2014
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