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Citizens Advice finds payday sector “out of control” 28 May 2013

A debt advice organisation has claimed that payday loan companies are lending to under 18s, people with mental health issues and individuals who were drunk at the time.

Citizens Advice said its analysis of 780 cases reported to it between 26 November and 13 May 2013 revealed evidence of “inadequate” checks on borrowers, with people chased for debts when the loan had been taken out by someone else using their identity.

It found that three out of four people, or 1,539 cases, struggled to repay the loan, with 84% saying that lenders did not offer to freeze interest rates or charges despite saying that they would do so.

During the six month period, 24,575 people went to Citizens Advice to seek advice about payday loans.

Its payday loan tracker, which studied customer feedback on 2,000 loans from 113 different payday lenders in the period, revealed that 87% failed to ask the borrower to provide documents to prove they could afford to repay.

According to its findings, 72% put pressure on people struggling to repay to extend their loan and 92% did not check that borrowers with repayment problems could afford to pay back the loan if it was extended.

Gillian Guy, chief executive of Citizens Advice, said that the industry is “out of control”.

She added: “It has showed a complete disregard for its customers. Many have been driven into debt by irresponsible lending and their debts ballooned as lenders put pressure on them to extend the loans.

“The OFT has an opportunity to wipe out the distress caused by this industry and make sure it is transformed into a responsible short-term credit market.”

But its study showed that 79% of borrowers reported that lenders are being much clearer about how much loans will cost in total.

Citizens Advice urged the Office of Fair Trading to use its powers to immediately ban those payday lenders which its investigation finds are causing harm to borrowers.

 

 

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