Consumers urged to ‘fight back’ against payday loan sharks

Payday lenders have come under increased scrutiny in recent months (Getty Images)

Payday loan customers who have been mistreated by a lender should feel confident in their ability to “fight back”, the consumer rights body Citizens Advice has argued.

In 76 per cent of cases examined by the organisation, borrowers were found to have grounds to take their complaint to the Financial Ombudsman Service (FOS).

Analysing 665 cases reported to them, Citizens Advice also found that one in five was a possible case of fraud, with people being chased for loans they never took out.

Over a third of the cases saw lenders using a recurring payment system called continuous payment authority to drain customers’ bank accounts. In 12 per cent of cases lenders refused offers of affordable payment plans from customers but continued to pester them with phone calls and text messages.

Frances Walker, a spokesperson for the debt charity StepChange, said that lenders were using aggressive tactics against vulnerable borrowers.

“One of biggest problems is the continued use of continuous payment authority. There is supposed to be an agreement that once people have defaulted or are having difficulties paying, they will stop. But there is evidence that in some cases they are continuing.

“We are seeing a lot of irresponsible lending. The average person coming to us at the moment owes more in payday loan repayments than their net income. And that’s on top of other repayments, as payday loans are often the last place people will go.

Citizens Advice chief executive Gillian Guy said: “The level of debt and hardship caused by some payday loans is absolutely scandalous and people often feel completely powerless to do anything about it.

“But consumers can fight back. If you are struggling to pay back the loan Citizens Advice can help you sort out a reasonable repayment plan and if you make a successful complaint to the Financial Ombudsman Service you could find you get a refund for an unauthorised payment or compensation for unfair treatment.”

Consumer minister Jo Swinson said: “Payday lenders are on notice – if they don’t take action to fix their problems, they will face further complaints and further sanctions,” she said.

Payday lenders have come under increased scrutiny in recent months following an investigation by the Office of Fair Trading (OFT), which found “deep-rooted” problems across the industry. Of 50 lenders given 12 weeks to come up to standard, 15 opted to leave the market.

Complaints against lenders brought to the ombudsman to date have predominantly gone in favour of the customers. Of 160 complaints made between April and June this year, 72 per cent were upheld.

A spokesman for the ombudsman service said research indicated that payday loan customers often tend to avoid coming forward rather than admit they have used the services. But, he said: “The big message is: Nobody is here to judge you.”