Management questions swirl around payday loans firms as complaints rocket
Governance of short-term lenders comes under fire as number of disgruntled customers rises and majority of criticisms are upheld
Complaints from customers about payday lenders have more than doubled in the past two years, according to the Financial Ombudsman. The watchdog received 794 new complaints in the year up to April 2014, compared with 296 in 2012, but the Ombudsman said there are many others who are put off from filing complaints by a “shame factor” associated with taking out payday loans. Nonetheless, the level of compalaints has raised questions over whether these companies are being properly managed in order to address customer concerns and make loans affordable.
Grievances ranged from customers claiming they had not taken out a loan in the first place, to accusations of fraud. In one case, someone in a complainant’s family had used their name to take out a loan without authorisation. Customers also attacked poor service, bad administration and aggressive debt-collecting practices. The findings have emerged just weeks after leading payday lender Wonga admitted to posing as two fake law firms in efforts to speed up customer repayments – a significant blot on its governance record that the Law Society has said should be investigated for potential criminality.
Mike O’Connor, chief executive of debt charity StepChange, said that the payday loans industry has been a problem for a long time. Last year, for example, the charity received calls asking for help from 66,557 payday loans users – up 82% on the previous year. “The fact that most complaints against payday loan companies are upheld,” O’Connor said, “is further evidence that when it comes to acting in the best interests of consumers, in many cases they fail to do so.”
He added: “Unaffordable lending, the misuse of continuous payments to drain money from customers’ accounts, the rolling over of loans and inflating debts with additional charges have been commonplace and damaging.”
On overcoming the “shame factor”, principal ombudsman Caroline Wayman said: “It’s important people don’t feel trapped with nowhere to turn for help because of the stigma that is associated with short-term lending.”
However, lenders argued that given the thousands of loans that customers receive each year, the number of complaints recorded by the Financial Ombudsman is relatively small – in fact, there were far more criticisms of other issues. For example, there were more than 10,000 complaints about credit cards last year, and almost 400,000 calls about payment protection insurance. “Of course, just a single complaint is one too many and anyone struggling with debt should seek out advice,” said Russell Hamblin-Boone, chief executive of payday lenders’ trade body the Consumer Finance Association. “But when looked at in context, payday lenders give customers little cause for complaint.”
Read this special CMI blog about the relationship between ethics and governance.