Payday Lenders Still Unfair to Customers in Arrears

Despite a more customer-focused approach by the payday industry, the FCA has found that customers in arrears are still not treated fairly.

In March 2014, the Financial Conduct Authority (FCA) announced that it would carry out a thematic review into the payday lender, covering 60 per cent of the market – made up of a selection of smaller and large firms, representative of the payday market, including online and high street lenders.

The regulator’s review has now been made public, showing non-compliance and unfair practices in all firms covered, leading to poor outcomes for many customers and in some cases, serious detriment and financial loss.

Richard Lloyd, director of consumer champion Which?, said: "This is yet further evidence that payday lenders are failing some of the most vulnerable consumers. The regulator must continue to take action to ensure that borrowers in difficulty are treated fairly and protected from falling further into a spiral of debt."

Most notably, reviews of three firms revealed a backlog of letters and documentation, including from vulnerable customers who had fallen behind in repayments. This documentation included medical evidence and letters from debt advisors providing crucial information about why some customers were failing to pay.

Some of these customers were still being pursued by collection agents, despite the fact that firms are required to give customers "breathing space" from collections activity if they provide evidence that they are working with a debt advisor to manage their debts.

Further examples of actions that may have exacerbated already stressful situations that were found, include:

• repayment plans that were clearly unsustainable and subsequently failed;
• firms not dealing appropriately with issues when things went wrong, for example staff failing to investigate or acknowledge complaints and customers having to explain their situation multiple times as a result of poor record-keeping;
• firms engaging in misleading practices to seek payment from customers in arrears;
• systems failures resulting in incorrect balances, fees and charges erroneously added, and in some cases, duplicate payments being taken.

It wasn’t all bad though. The regulator said it had been "encouraged" by the steps taken by many firms to change behaviour and fully implement the rules over the last 12 months, including:

• changes to senior management;
• revising policies and procedures for collections cultures that are focused on treating customers fairly;
• implementation of training programmes to ensure staff are equipped to deal with struggling customers appropriately;
• improving approaches to monitoring, compliance and managing risk.

Information from the thematic review and ongoing investigative work will form part of the assessment of firms during the process for FCA authorisation.

Tracey McDermott, director of supervision and authorisations at the FCA, said: "This segment of the industry has, for too long, been in the spotlight for the wrong reasons. It is essential that the more customer-focused approach we have started to see is maintained and embedded as we go forward.

"The real test for these lenders will be FCA authorization, where they will have to demonstrate exactly how much progress they have made if they want to remain in the market."