As the Financial Conduct Authority confirms its rules for the consumer credit industry and new plans for payday lenders, Citizens Advice says the strength of success rests on enforcement.
Citizens Advice Chief Executive Gillian Guy said:
“Payday lenders are acting as a law unto themselves flouting regulation and showing a complete disregard for their own promises they made to customers. High interest rates, unexpected fees and the draining of bank accounts are driving consumers deep into debt. It is encouraging the FCA has listened to Citizens Advice’s recommendations about the industry and taken on board our clients’ terrible experiences with lenders but the job is not done yet.
“Since the FCA outlined it plans in October Citizens Advice has received feedback on 900 loans through its payday loan tacker. Over 300 of them repaid their loans using continuous payment authorities but more than half had not received the necessary three day warning a payment was going to be taken. Irresponsible practices such as these are further evidence that the industry needs to be regulated with an iron fist by the FCA strongly enforcing the new rules.
“The misuse of continuous payment authorities is one of the most damaging factors in payday lending. Bank accounts are raided without warning leaving people penniless meaning they’re unable to pay to travel to work or buy food.
“It is important the FCA keeps an eye on this and that the cap on rollovers is kept under review.”
The FCA also announced its plans to tackle other parts of the credit industry including debt management companies, log book loans and credit brokers.
Debt management companies
Gillian Guy said:
“Citizens Advice has helped people who are paying for debt management services only to find their debts are barely reducing. High fees means only a fraction of repayments goes to their creditors.
“Today the FCA has taken the right step to try to change this by forcing debt management companies to pay more towards a customers’ debt straight away. It’s must makes sure firms abide by this rule and a significant proportion of people’s payments does actually go towards their debts.
“There is a real opportunity for the Financial Conduct Authority to do more protect people from spurious practices. Banning firms from cold calling would help consumers know if they’re contacted out of the blue it is a firm not to be trusted.
“As it stands, customers are in a very vulnerable position if the company goes bust. It is good the FCA will introduce rules to make companies ring-fence customers’ money but this needs to happen as soon as possible.”
Gillian Guy said:
“Credit brokers are not being up-front with their customers. In some cases, they are posing as a direct lender, aren’t disclosing they charge fees and are passing on people’s details to other brokers, meaning multiple payments are taken without people’s explicit consent.
“Preventing unscrupulous brokers from entering the market in the first place through a strict authorisation process is essential. The FCA should also be seriously concerned about the prevalence of data sharing among brokers as money is being siphoned from people’s bank account without clear permission.”
Logbook loans (bills of sale)
“Urgent attention needs to be given to the logbook industry. As it stands firms are able to take away someone’s car without any due legal process – this is absurd.
“Borrowers are falling foul of high interest rates, a lack of affordability checks, phantom charges and threatening practices.
“Our evidence shows that logbook lenders have paid little regard to the voluntary code. The FCA and the Government need to act to prevent cars being taken away without a court order and to provide protection for people who innocently buy cars not knowing they are subject to a logbook loan.”