Citizens Advice Scotland have backed the OFT’s latest action on payday loans, which includes a 12-week deadline for firms to stamp out unfair lending or lose their licence.
In backing this move, CAS have called for an end to ‘business as usual’ in the industry, and have also urged people who have taken out payday loans recently to contact them with information about their experience.
CAS spokesman Keith Dryburgh says,
“This is welcome news and we strongly support the OFT’s efforts. CAB evidence is very clear that the growth of payday loans in the last few years has seen a lot of irresponsible lending, which has led many families into the misery of un-manageable debt.
“For famiies who are struggling to make ends meet, payday loans can seem very attractive. But they have Interest Rates as high as 4,000%, and these have a huge impact on people who are on low incomes. We also find that many lenders are not being clear about their terms and conditions, are offering loans to people without proper assessment of their income, and are then pursuing debts aggressively.
“Last year the Scottish CAB service saw 50 new cases every day of people who had taken out a personal loan and were unable to keep up the repayments and have become stuck in a spiral of debt. So it is clear that the industry needs to clean up its act. ‘Business as usual’ is not an option.”
In November the payday loans industry introduced its own code of conduct that was supposed to eliminate irresponsible lending. CAS are monitoring the lenders on their adherence to this charter, and supporting consumers to take action if they have been unfairly treated. Keith Dryburgh says:
“Its really important that we get as much information as we can, so we can protect consumers from these unfair practices. If you have taken out a payday loan since 26th November last year, or if you know someone who has, please complete our quick survey (link no longer available) to find out if you have been treated fairly, and if not, we’ll help you take action.”
Notes to editors - click to expand/collapse
These case studies are all anonymous, but have all been submitted to us by Scottish CAB advisers over the last few months. We do not have any case studies at the momet who have agree to do interviews. However, we can provide CAB advisers in all parts of Scotland, who will be very willing to be interviewed about the cases they see. They can describe individual cases in detail, and talk about how they are affected by them.
Some general examples of payday loan cases at Scottish CABs
A West of Scotland CAB reports of a client who took out payday loans for everyday living expenses. The client’s debts have accumulated since he separated from his wife 4-5 months previously and he is struggling to make ends meet. He is in full-time employment, but half his wage goes towards his rent. He took out the payday loans to supplement his salary, but now says he is ill with worry about his debts.
A West of Scotland CAB reports of client who has become stuck in a cycle of payday loans which she has been using to help with living costs. The client has been on basic pay from work following suspension and has needed credit to get by. The repayments on the loans amount to £250 per month with £84 worth of additional interest. She has been using these loans for some months and is finding them hard to pay back due to the interest payments.
A West of Scotland CAB reports of a client who took out five payday loans after a series of events left him desperate for money. The client recently separated from his wife and had to leave their home to live with his parents. As a result of the situation, the client lost his job. In desperation for money, the client took out five payday loans totalling over £2,000.
An East of Scotland CAB reports of a client who began using payday loans after she began to struggle with debt. The client and her husband both suffer from depression and her husband was on unpaid leave from work for six months last year. As a result, they are in financial difficulty although her husband does not know the extent of their debt. They are both in full-time work and are homeowners, but have around £30,000 in unsecured debt, including eight payday loans. The client said that she had recently ‘resorted’ to using payday loans and has had problems with money being taken directly from her account.
More case studies - listed by the specific 'problem' issues identified
Transparency of Information (when lending to new and existing customers)
The Citizens Advice consumer helpline reports of a client who gave his details to a payday lender thinking that this was for identification purposes. He has now discovered that he had become a member and they have taken a fee via his debit card. The client maintains that he was unaware that he was signing up to anything or that he was required to pay a fee.
The Citizens Advice consumer helpline reports of a client who searched for payday loans on the internet. The client gave his details on one website but received no verification that he had been successful. The client then discovered that £69 had been taken from his account by the lender without the client receiving a loan. The client has young children and now has very little money in his bank account.
The Citizens Advice consumer service reports of a client who was charged a brokerage fee after completing an online enquiry form for a payday loan. The client had carried out a web search for payday loans, but was not told that there would be a brokerage fee of £69.99 when the client gave his details on the online form. The OFT records show that the company’s consumer credit licence had lapsed some months earlier.
An East of Scotland CAB reports of a client who was contacted by a number of payday lending companies after applying for a loan. Each lender has charged an administration fee which amount to over £220. This has taken up all of the client’s fortnightly benefit payment. The client and his partner therefore have no money to live on until the next benefit payment. The bureau managed to get the majority of the lenders to refund the administration fees.
Extending the terms of the loan(e.g. putting pressure on clients who may not need another loan, and may not be able to cope with the additional repayments)
A West of Scotland CAB reports of a client who took out a payday loan in February which then ‘rolled over’ each month until the client was paying £783 a month to the lender. The client lost her purse one month and was unable to make a payment. She then received numerous harassing phone calls from the lender including threats to contact her employer and family. The client offered to pay back the money owed in instalments, but the lender is insisting that the client pay the outstanding amount of £722 immediately when the client is unable to do so.
A West of Scotland CAB reports of a student who is experiencing difficulties with a payday loan. The client has taken the option to extend the loan that she has, which means that she now needs to repay almost the full amount of the loan just to extend it for another month. The client will still owe substantially more than she borrowed. Citizens Advice Direct reports of a client who is struggling to repay a payday loan. The client took out £300 over three months ago and has been repaying £75 each month. However, this only reduces the capital owed by £6 per month. At this rate of repayment, the client would need to make 50 payments of £75 before he repaid the loan. The bureau contacted the lender to ask them to freeze the interest to help the client repay the loan.
In some instances, customers have been offered further credit despite informing the lender that they are experiencing financial difficulty and cannot afford to meet their existing commitments. This option is only beneficial in the very short-term and ultimately is only likely to worsen the customer’s financial situation. The Which? research found that 57% of payday loan customers had been encouraged to take out further loans.[i] There is also concern that lenders do not check whether rolling over a loan or offering further credit is affordable, with the OFT finding that only 22% of lenders conduct an affordability assessment each time a loan is rolled over.
A West of Scotland CAB reports of a client whose lender offered her a further loan when she contacted them to say that she was experiencing financial difficulties. The client works part-time on a zero hours contract and her wages are going to be less than expected after having to take time off work when her mother was taken into hospital. The client had contacted her lenders and all but one had agreed to accept a reduced amount. One of the pay day lenders asked her to come back after the payment had been taken from her account and they would give her a further loan. The client explained that she would have insufficient funds to cover the payment and that this would create bank charges that she was keen to avoid, but they were not willing to negotiate.
An East of Scotland CAB reports of a client who was offered additional credit each time she was struggling to pay off a payday loan. The client and her partner have seven payday loans with different companies and a total debt of over £14,000. The client stated that taking out payday loans had made their debt problems worse, as when they had difficulty paying off the first loan they were offered another. The payday lenders are now phoning the client 20-30 times a day.
The need for appropriate assesment of clients(i.e. the need to consider the person’s financial situation before giving them a loan, to make sure they can cope with the repayments).
A South of Scotland CAB reports of a client who sought advice on her debts after taking out 14 payday loans. The client has debts totalling around £35,000 and is borrowing from friends and family to meet interest payments. The client’s husband is unaware of her debts.
An East of Scotland CAB reports of a client who took out 13 payday loans as a result of a gambling addiction. The client advised that he managed to take out a number of payday loans without giving any proof of income and that he receives up to 100 emails and texts per day with pre-approved payday loan applications. The client would like to be made bankrupt so that he is unable to access credit for his gambling addiction in the future.
An East of Scotland CAB reports of a client who has 21 different debts worth more than £25,000 in total. The client is a homeowner and employed full-time. The client has taken out a series of payday loans to try to keep up with his other debts. He has payday loans with 10 different companies worth over £8,000. A West of Scotland CAB reports of a client who had five payday loans with five different companies all due for full repayment in a five day period at the end of the month. These loans amounted to over £2,300 in total. The client has little money to offer and has no overdraft on his account.
A North of Scotland CAB reports of a client who had sought a £50 payday loan and was persuaded by the lender that she could afford £250 to be repaid at £40 per month. She did not set up a Direct Debit, but when she defaulted after two payments the lender used her bank details to take money out of her account without her permission. When the client contacted her bank they agreed to recover the money from the lender and get it repaid into her bank account, but it would take 5 days and the client would not be able to withdraw cash meantime. The CAB adviser contacted the lender who confirmed an amount of £180 outstanding including a default interest charge of £87. However they stated that if she wanted a statement of account she must apply in writing and pay a £10 fee.
Citizens Advice Direct reports of a client whose son received a payday loan despite being unemployed for two years. The client repaid the loan and asked the company why they had given his son the loan in the first place. The lender stated that they would never give loans to anyone who does not have a steady income.
A West of Scotland CAB reports of a client with Asperger’s Syndrome and learning difficulties who recently borrowed a substantial amount of money through a number of online payday loans. The client gave his bank details and the lenders have been able to take out money as they wished. The client’s father is looking into being responsible for his son’s financial affairs and has successfully negotiated with all of the lenders except one.
Taking re-payments directly from the client's back account(‘Continuous Payment Authority’)
A South of Scotland CAB reports of a client who is in debt to two payday loan companies. These creditors have been withdrawing payments from his account without his consent. One creditor took four payments amounting to £200 on the same day, and the other took five payments amounting to £193 one day and another seven payments amounting to £262 ten days later. His bank has extended his overdraft to cover these payments. According to the client they have frozen his account but it is still active so they cannot prevent these creditors taking more unauthorized payments.
A West of Scotland CAB reports of a client who took out a payday loan of £200. He was due to pay £250 from his wages the following month but due to illness and a stay in hospital, he did not have enough funds to pay. The company took £325 from the following month’s wages which has left the client with little money to live on. He phoned the company but was told that the loan was paid off and nothing else could be done.
An East of Scotland CAB reports of a client whose lender used the continuous payment authority to take £236 from his account. The client couldn’t make the repayment last month as he had to take a week off work and his income fell as a result. The client now has no funds in his account and is desperate to get some of the money back as he has just booked a weekend for his son who he hasn’t seen for a long time.
An East of Scotland CAB reports of a client who is having problems with a payday loan company. He borrowed £400 from them in December and missed a repayment in January. Following this the company started taking higher amounts directly from his bank account without prior warning. The client phoned the company and came to an arrangement whereby he would start paying £125 per month until the loan was paid off. However the company continues to take higher amounts directly from his account and with no warning. As a result of the unpredictability of the loan repayments, he and his wife are being threatened with eviction as they've fallen behind with their rent. The bureau checked the terms and conditions of the lender which states that they have the right to take variable amounts directly from the debtor’s account on variable dates.
Citizens Advice Direct reports of a client who is at risk of losing her home after a creditor took a series of payments from her account after she defaulted on the loan. The client took out a payday loan last year and has taken out further payday loans to meet the payments on the initial loan. Her debts have accumulated and the client has now defaulted on the original loan. On one day, the original loan provider deducted five payments from the client’s account amounting to over £500. The client had an agreement to repay rent arrears to the local authority, but is now unable to meet these payments and has an eviction hearing scheduled.