The Financial Conduct Authority (FCA) has discovered “serious non-compliance” and unfair debt collection practices in every payday lender that it has reviewed.
The review of the first 12 months of the FCA’s regulation of the sector has shown widespread failures in how payday lenders treat customers in arrears.
A damning report said that too many payday lenders have been failing to treat customers in arrears fairly, leading to poor outcomes for many customers and in some cases, serious detriment and financial loss.
It revealed “unacceptable practices” from many lenders, including failures to recognise customers in financial difficulty, failure to direct people to free debt advice and firms offering inflexible repayment options.
Some of the practices the FCA uncovered included:
• Unsustainable repayment plans that subsequently failed
• Firms not dealing with issues when things went wrong, for example staff failing to investigate or acknowledge complaints, and customers having to explain their situation multiple times as a result of poor record-keeping
• Firms engaging in misleading practices to seek payment from customers in arrears
• Systems failures resulting in incorrect balances, fees and charges erroneously added, and in some cases, duplicate payments being taken.
Tracey McDermott, director of supervision and authorisations at the FCA, said: “This segment of the industry has, for too long, been in the spotlight for the wrong reasons.
“The real test for these lenders will be FCA authorisation, where they will have to demonstrate exactly how much progress they have made if they want to remain in the market.”
Our rules are designed to ensure loans are affordable; that customers who get into difficulty are treated fairly and that they are not pressurised into unaffordable and unsustainable repayment plans.
The review, which looked into how payday lenders and short term credit providers collect debts and treat borrowers in financial difficulty, covered 60 per cent of the market.
Reviews of three specific firms revealed a backlog of letters and documentation, including from vulnerable customers who had fallen behind in repayments.
This documentation included medical evidence and letters from debt advisors providing crucial information about why some customers were failing to pay.
Further probes revealed that some of these customers were still being pursued by collection agents.
The FCA emphasised the rule that firms have to give customers breathing space from collections activity if they provide evidence that they are working with a debt advisor.
When it found non-compliant debt collection tactics, the FCA intervened quickly to get firms to take steps to ensure the failings are not repeated.
In some cases, investigations are ongoing and the regulator is working with firms to determine levels of redress for debtors.
The FCA added, however, that it has been encouraged by steps taken by many firms to change behaviour, including changes to senior management; revising policies and procedures for collections cultures that focus on treating customers fairly and improving monitoring.
By Marcel LeGouais