Payday loan companies have been in the news a lot recently, and for all the wrong reasons. Now, they're coming under scrutiny yet again, this time for the number of customer complaints received about them.
The financial ombudsman has seen a "significant increase" in the number of payday loan complaints received in the last year, it revealed yesterday, with it now taking on an average of 70 new cases each month. So far this year (1 January – 30 September), the ombudsman has received 613 new payday loan complaints, compared with 506 in the same period a year ago, equating to a rise of 20%.
As a result, the ombudsman has published an insight report into payday lenders' business practices, which examines the complaints received and how consumers are being treated. In many cases, the customer wasn't told that they were entitled to take their complaint to the ombudsman, and the ombudsman also identified "alarming" treatment of vulnerable consumers.
So, just what are customers themselves complaining about? Well, the main complaint themes revolve around lenders' poor business practises and clear lack of flexibility when it comes to helping consumers. For example, the provider was often found to be unwilling to accept a suitable payment plan, and perhaps most alarming, many used continuous payment authorities that left consumers without money to pay their bills.
Poor administration and customer service were other key areas of complaint, as was debt-chasing practices, and there were also several complaints about damage to people's credit reports. However, one particularly notable trend was the rise in the number of customers who said a payday loan had been taken out fraudulently in their name, something which clearly needs to be addressed.
It's hoped that the new regulations for the industry will help to tackle these issues to a certain extent, but there are also plans afoot that could help lower the cost of these loans for consumers.
The Consumer and Markets Authority (CMA) has announced its proposals to lower payday loan costs by increasing competition in the market, with the ultimate aim being to get borrowers a better deal. Key proposals include measures to encourage the development of a price comparison sector for payday loans, with lenders being required to provide details of their products to accredited sites to enable consumers to make quick and accurate comparisons.
This, it's hoped, would help stimulate greater price competition in a market where many borrowers currently do not shop around, partly because of the difficulties in accessing clear and comparable information on the cost of borrowing, it said in a CMA statement. It would challenge suppliers to offer borrowers a better deal and could even make it easier for new entrants to get a foothold in the market, which could help boost competition even further.
Other measures include those to encourage greater transparency on fees, a requirement for lenders to provide borrowers with a summary of the charges they've recently paid to give them a clear picture of how much they're spending, and ways to help borrowers shop around without damaging their credit rating.
Simon Polito, chair of the Payday Lending Investigation Group, commented on the announcement:
"Greater price competition will make a real difference to the 1.8 million payday customers in the UK. At the moment there is little transparency on the cost of loans and partly as a result, borrowers don't generally shop around and competition on price is weak.
"By ensuring that there are accredited websites providing impartial, relevant and accurate information about payday loans, we can make it easier for customers to make comparisons and there will be a much greater incentive for lenders to offer lower cost loans and to win borrowers' business. Lower prices from greater competition would be particularly welcome in this market."
Read more about Payday Loans with our Guide to Payday Loans
Check out our pages on Dealing with Debt
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