Complaints about payday loans have almost doubled over the past year, in what the Financial Ombudsman Service (FOS) described as a "growing area of concern".
In the latest edition of Ombudsman News, the FOS said that it was receiving between 30 and 40 new disputes every month – an increase of 75% on last year – and that it was ruling in the consumer’s favour in three out of every four cases.
Problems frequently brought to the Ombudsman’s attention included the use of “continuous payment authority” by lenders, which allows them to make repeated attempts to reclaim payments directly from a bank account.
Lenders are increasingly claiming to be socially responsible. But struggling customers who had legitimately reported their difficulty in repaying a loan found that lenders quickly disregarded debt management plans.
One lender was also deemed to have acted unfairly after it registered a default against a customer's credit rating despite having an agreed deferment plan for repayment with the borrower. It also had no evidence of the correspondence it was required to serve for its action.
Inadequate Security
Concerns were also raised about inadequate identity checks. After a customer complained that a loan had been taken out fraudulently in their name, the lender had been forced to admit to the Ombudsman that its validation process involved matching card details with addresses, but that the correct name would not have been mandatory for the loan to be validated.
The Office of Fair Trading (OFT), which regulates the sector, has sought a more forceful approach with payday lenders found to be acting negligently.
It finally succeeded in shutting down MCO Capital in March after serious lapses in the lender’s security procedures allowed more than 7,000 loans to be taken out fraudulently (read more).
And new powers introduced in February now allow it to suspend credit licenses with immediate effect, meaning that negligent firms will no longer be able to continue trading under appeal.
The Citizens Advice Bureau has recently submitted a body of evidence to the OFT which shows lenders to be harassing customers, overcharging, and even preventing customers from making payments so that late payment charges are incurred (read more).
Are payday lenders fair and legitimate practitioners, or do we need greater regulation? Let us know by leaving a comment below!
Keith McDonald
Which4U Editor
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