Complaints about payday lenders soar despite fears of ‘shame factor’

Financial Ombudsman 5,395 inquiries about payday loans in the past financial year

Wonga sent the fake letters between October 2008 and November 2010 (PA)

Complaints about payday loans have more than doubled in the past two years, but the Financial Ombudsman warned yesterday that the “shame factor” was putting off most people from complaining.

“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,” said the principal ombudsman, Caroline Wayman.

The ombudsman received 5,395 inquiries about payday loans in the past financial year and found in favour of the consumer in two-thirds of cases.

It said that disappointingly high numbers of people were unaware that they could speak to the ombudsman if they felt that they were not being treated fairly.

Martin Wheatley, the chief executive of the Financial Conduct Authority, said in response: “Very often the people who are going to payday loans companies are the most vulnerable and not financially the most literate.

“People need to know that the ombudsman service is there before they can take their case to it.

“We know that they walk into debt charities such as Citizens Advice and StepChange a lot because they’re on the high street.

“But we and the ombudsman have the challenge of letting them know there’s a route to get help if they have a problem with a payday lender.”

The City regulator last week introduced tough new rules that payday lenders have to operate under, including a ban on rolling over loans more than twice and a limit of two set on how many times they can attempt to take money from borrowers’ bank accounts under controversial continuous payment authorities.

The ombudsman warned payday lenders over their poor business practices and called on them to take a positive approach when tackling customers’ concerns. Mike O’Connor, the chief executive of debt charity StepChange, said: “The fact that most complaints against payday loan companies are upheld is further evidence that when it comes to acting in the best interests of consumers, in many cases they fail to do so.”

Mr O’Connor said that the payday loan industry had been a problem for many years. “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,” he said.

Last year the charity reported that 66,557 people with payday loans sought its help, an increase of 82 per cent over the previous year.

The ombudsman said the most common cause for complaint was from people saying that they had not taken out the loan, which suggests that fraudsters who apply for payday loans using other people’s details may be increasing their activities.

But people also raised concerns about poor service and administration, payday lenders not being willing to help those struggling to repay and aggressive debt-collecting practices.

“We often hear from people who took out a payday loan as a desperate last resort and blame themselves when the debt starts to spiral out of control,” Ms Wayman said.

The ombudsman is scheduled to publish a report later this summer looking into the payday lending complaints that it receives.