The Citizen’s Advice Bureau is calling on the Office for Fair Trading to immediately ban the payday lenders it says it has evidence of causing harm to borrowers.
A six month investigation by Citizen’s Advice found evidence of a number of “unscrupulous” payday lender firms engaging in irresponsible lending, inadequate checks, harassment and refusals to agree on repayment plans.
An analysis of 780 cases reported to Citizen’s Advice between November and May uncovered evidence of lending to people with mental health issues, people who were drunk at the time and borrowers under 18.
CAB chief executive Gillian Guy says: “The payday loan industry is out of control and is acting as a law unto itself. 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 Citizens Advice payday loan tracker studied customer feedback on 2,000 payday loans, from 113 different payday lenders, from 26 November 2012 to 17 May 2013. The tracker monitors whether lenders are abiding by their own customer charter.
The customer charter was introduced in July 2012, representing over 100 lenders and around 90 per cent of the total market. The aim was to improve background checks on applicants as well as improve their understanding of the potential borrowing terms.
Seven in 10 borrowers, or 72 per cent, were found to have come under pressure to extend their loans while the investigation found evidence of lenders misusing Continuous Payment Authorities in order to extract money from bank account.
The study found 95 per cent of lenders did not check that borrowers with repayment problems could afford to pay back the loan if it was extended.
It uncovered evidence that 87 per cent of lenders did not ask the borrower to provide documents to prove they could afford to repay the loan, 95 per cent did not check borrowers with repayment problems could afford to pay back the loan if it was extended, and 54 per cent did not warn that a payday loan should not be used for long-term borrowing or to deal with money troubles.
Additionally, 84 per cent of borrowers with repayment problems were not offered the chance to freeze interest and charges when they encountered repayment difficulties.
During the same six month period 24,575 people sought online advice about payday loans from Citizens Advice
Guy says: “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. It is vital that, following the investigation, the OFT takes swift action to protect consumers from the harm caused by these unscrupulous lenders.”