Payday lenders slow to improve practices

Just 1 in 5 people struggling to repay a payday loan had the interest frozen and only a quarter thought the lender treated them sympathetically, finds Citizens Advice.

New evidence from the national charity’s online payday loan tracker survey highlights how payday lenders have been slow to improve their practices, despite the industry’s own promises and pressure to clean up its act.

Citizens Advice has found that some payday lenders do seem to be making slight improvements when it comes to asking people about their personal finances.  Half of customers are now reporting that this the case, compared to a third previously.

New, separate analysis of Citizens Advice clients with serious debt problems finds:

• 1 in 8 has a payday loan.
• £1,000 is the average payday loan debt (this is often spread across a number of loans).  
• Clients with payday loans debts are more likely to be employed.

Wednesday 1 October marks the end of the ‘grace’ period given to payday lenders and other providers of consumer credit, allowing them time to adapt to the new regulations brought in by the Financial Conduct Authority in April this year.  Some lenders have already felt the force of the FCA with companies ceasing trading due to the new rules coming in and early action from the FCA.

Gillian Guy, Chief Executive of Citizens Advice, said:

“Payday lenders are still not sticking to their word to treat people fairly.  While things are moving in the right direction, some payday lenders are still falling far short of responsible lending.  Customers need to have the full facts at their finger-tips when making decisions about borrowing.

“Irresponsible behaviour including a lack of proper checks to see if people can afford to pay back loans and pressurising borrowers into extending loans has pushed people deep into debt.  The new rules should contribute towards ridding the market of irresponsible lenders, but this won’t be achieved by regulation alone.   The FCA needs to use enforcement action make sure firms flouting the rules are not allowed to operate.  

“As people continue to struggle to make ends meet, the demand for short-term credit won’t go away. That’s why, as well as a cleaner market, people need more choice.  Increasing the number of credit unions is part of that, but so too is banks stepping up to the plate by offering a responsible micro-loan.”

The evidence is based on feedback from customers, provided to Citizens Advice via an online survey. In total 5,333 people have responded since 26 November 2012, when the industry made promises to treat customers fairly.

The chart below shows customers feedback on their experience of payday lending. It has scores from three time points: a year since the industry introduced its voluntary code on how it will treat people fairly, a year since the FCA announced it will look into new regulations and the first five months under the new rules.  Arrows up indicate improvement arrows down show it has got worse and lines across mean no change.  Green reflects good performance, amber average and red is not good enough.

	26 Nov 2012 to 25 Nov  2013		1 April 2013 to 31 March 2014		1 April 2014 to 31 Aug 2014
Survey Question
Made aware of repayment costs of loan	79%		79%		75%
Questions asked about personal finances	39%		42%		50%
No problems in repaying loans	23%		23%		26%
Extended loan without getting pressurised	30%		32%		36%
Made aware of risks of extending	18%		18%		22%
Costs of extending loan made clear	37%		37%		37%
Personal finances checked before extending the loan	6%		7%		16%
Sympathetic treatment if customer in difficulty	17%		18%		26%
Offered freeze on interest, charges	16%		16%		19%
Told of availability of free debt advice	9%		10%		19%

Notes to editors:

1. The majority of rules for payday lenders will come in on 1 April. Specific rules around rollovers and CPAs come into force on 1 July 2014.
2. Citizens Advice analysed feedback on payday loans from customers provided to its payday loan tracker between 26 November 2012 and 31 August 2014.  
3. Citizens Advice has received customer feedback on 5,333 payday loans from over 100 different payday lenders since it launched on 26 November 2012.  Feedback was provided through an online survey, questionnaires in bureaux and face to face surveys on high streets.  The study was promoted widely through national media and other organisations including Nationwide, Which?, Toynbee Hall and other debt charities.  The tracker monitors whether lenders are abiding by their own customer charter
4. Citizens Advice analysed more than 23,000 cases of significant debt problems handled by bureaux between April and September 2013.  The study broke down the different types of debt in order to allow further analysis of cases where people had taken out a payday loan.
5. This year the Citizens Advice service celebrates its 75th anniversary. We’ve planned a year of activity running from January to December 2014. Contact the press office on 03000 231 080, or via email at press.office@citizensadvice.org.uk, to find out more.
6. The Citizens Advice service comprises a network of local bureaux, all of which are independent charities, the Citizens Advice consumer service and national charity Citizens Advice. Together we help people resolve their money, legal and other problems by providing information and advice and by influencing policymakers. For more see the Citizens Advice website.
7. The advice provided by the Citizens Advice service is free, independent, confidential, and impartial, and available to everyone regardless of race, gender, disability, sexual orientation, religion, age or nationality.
8. To find your local bureau in England and Wales, visit citizensadvice.org.uk. You can also get advice online at adviceguide.org.uk
9. You can get consumer advice from the Citizens Advice consumer service on 03454 04 05 06 or 03454 04 05 05 for Welsh language speakers
10. Citizens Advice Bureaux in England and Wales advised 2.1 million clients on 6.6 million problems from April 2012 to March 2013. For full 2012/2013 service statistics see our quarterly publication Advice trends
11. Citizens Advice service staff are supported by more than 22,000 trained volunteers, working at over 3,000 service outlets across England and Wales.