Payday loans branded a "debt sentence"

The Momentum UK Team 31 March 2014

Customers who are having difficulty repaying their payday loans are not being treated fairly by some lenders, according to new figures from Citizen’s Advice.

Today Citizen’s Advice revealed the latest findings from its payday loan tracker, which indicate that some payday lenders aren’t keeping promises they have made to customers. In four out of five of the cases reported to Citizen’s Advice since October last year, customers were struggling to repay their loan. Many of these customers were found to be treated unfairly.

Of the 807 cases where people struggled to repay their loan, 86% hadn’t had the interest or charges on their loan frozen. Four out of five weren’t treated with sympathy, and a third were put under pressure to extend the loan. This has been highlighted as one of the most problematic practices of rogue lenders, and Citizen’s Advice found that 84% of those struggling to repay weren’t told the risks involved in extending their loan. Nine out of ten said that no checks were carried out before the loan was extended, and the same proportion of people were not told about access to free debt advice.

These findings come the day before the Financial Conduct Authority (FCA) takes over full responsibility for the consumer credit market on the 1st of April.

Chief executive of Citizen’s Advice, Gillian Guy, commented on the findings:

“A payday loan has become a debt sentence for many of our clients due to irresponsible practices by lenders. Consumers who are looking for a bit of money to tide them over need a fair and competitive market to engage with not one that seeks to exploit them. The stern warning and tough rules from the FCA need to be followed with strong enforcement action. Lenders found to breaking the rules and harming consumers should be immediately thrown out of the market.

“Citizens Advice continues to deal with people on a daily basis who have been driven deep into debt because of payday lenders’ harmful behaviour. The FCA listened to the problems our clients have had with payday lenders and acted on our advice, including introducing rules to make sure proper checks are made to assess whether the borrower can afford to repay. It’s important the FCA doesn’t pull any punches with payday lenders and delivers on its commitment to ensure a fair market for all consumers.”