Payday loans and lenders have come under fire from the Financial Ombudsman Service (FOS) recently. Figures
published by FOS in its Annual review 2018/2019
show a 130% rise in the number of complaints about payday loans, reports George Nixon for This is Money
The rise appears to coincide with recent statistics regarding households increasingly turning to debt to finance day-to-day spending. Despite the FCA rule changes and payday lender Wonga going bust in August 2018, the FOS reports complaints about payday loans have increased from 17,000 in its 2017/2018 report to 39,715, and the total number of complaints reported to the ombudsman has increased by 14%.
Although, Nixon reports, it’s possible that the administration of Wonga could have played a role in the increase of complaints “with those who thought they were poorly treated trying to claim compensation by complaining to the ombudsman rather than Wonga's administrators”.
published by complaints website Resolver also finds a huge increase in customer complaints about payday loans, rising by 419% from 2017 to 2019.
Catherine Wayman, chief executive of FOS, is quoted in Nixon’s article: “Too often we see that the interests of consumers are not hard-wired into financial services. This marks a five-year high in the number of complaints that consumers have brought to us, and the behaviour we've seen from some businesses is simply not good enough. While we do see examples of businesses responding well to customer concerns, we also see many firms who don't.”
This is Money article
Heating up in the US
In the US, the “battle over payday lending” is “heating up”, according to a PYMNTS article.
The previous director of the Consumer Financial Protection Bureau (CFPB), Richard Cordray, had drafted rules that sought to “put in place new underwriting requirements for lenders, such as certifying borrowers’ ability to repay the payday loans” and “how often a lender can try and debit payments from a customer’s bank account”, PYMNTS reports.
Kathleen Kraninger, the new director of CFPB, is proposing to eliminate the component of verifying a borrower’s income, debt and spending habits prior to underwriting a loan. The announcement of such a change triggered a comment period for the public to give their opinion – the cutoff point was 15 May 2019.
PYMNTS refers to an article
by Yuka Hayashi for The Wall Street Journal
that states “payday lenders have been mobilising their customers to push the federal government to ease Obama-era regulations of the sector, according to research by a consumer advocacy group that favours the rules”. It also reports that the consumer group, Allied Progress, claims “lenders have organised thousands of customers who have sent in duplicated comments in support of the change”. This reportedly makes up almost a quarter of the 16,761 public comments that have been submitted as of 11 May.
A Chicago point of view
How do payday loans affect the person on the street? A news report by Charlie De Mar for CBS Chicago describes payday loans as “a way to get quick cash” but this can “create a cycle of debt”. He interviews Laura Varela, a person paying off a payday loan three years on. “It’s a trap,” she says.
De Mar describes the loans as “typically a few hundred dollars” but that the annual interest rate can be as high as 400%. Raul Raymundo, CEO of the Resurrection Project, a non-profit that helps the local community, has worries about the CFPB's proposed changes to the rules. Raymundo says that the lenders won’t “check to see if they have the ability to pay … they are just going to make these loans and then trap them”.
Raymundo says that if the CFPB does change these provisions, it will “repeat the things that happened a decade ago”, referring to the financial crisis.
What more should be done to protect consumers from the threats of payday loans? Have you been affected by payday loans? Leave your comments below.
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