Two Pennies Worth

Have you taken out a payday loan?

As Consumer Focus expresses concern at the prevalence of expensive payday lenders, Confused.com’s Stephen Jones re-visits a subject he’s become pretty familiar with in recent months.

Those of you following the weekend’s papers may well have noticed payday lenders making headlines yet again. As any regular readers of this blog will know - Hi Mum! - this is a subject that I’ve taken a keen interest in over the last year.

According to new research from Consumer Focus, the number of people using these types of loans has increased fourfold in the last four years, with 1.2 million people borrowing a combined £1.2 billion.

As I have always said, it’s not the interest rates that bother me about many of these lenders, but the transparency. In its research, Consumer Focus makes a similar point, noting that several of those they spoke to were unsure about what would happen if they were unable to pay back on time.

This is exactly what I had found when doing my own research, and I’m looking to hear from anyone who has actually taken out one of these loans to see if they’ve had the same experience. Did you feel that you were given sufficient information about your loan? If you did struggle to meet the repayments, how were you treated?

If you have anything to say about payday lenders, drop me an email to stephen.jones@confused.com and let me know about it.

Are we getting tough enough on payday lenders?

Just a couple of weeks after Confused.com took a look into the practices of payday lenders, the Office of Fair Trading (OFT) published their own report on high-cost credit. Stephen Jones examines the results and calls for greater action to protect consumers.

The OFT this week published a report covering the areas of high-cost lenders such as pawnbrokers, home credit providers and, significantly, payday lenders. Anyone who keeps tabs on this blog may remember that only a couple of weeks ago I took a look into the lending practices of the latter, to find that many were failing to provide sufficient information to customers.

The investigation contained a number of recommendations aimed at better regulating the high-cost credit industry, but stopped short of calling for price controls; despite many people’s claims concern at annual percentage rates (APR) that often reach into the thousands.

While most of the press predictably raged at the OFT’s decision not to cap these huge interest rates, I tended to take an entirely different view. Enforcing a cap would simply mean the payday loan companies place charges elsewhere, making it more expensive for customers that use them sensibly in the short term and potentially pushing people into the arms of decidedly more sinister loan sharks; something which surely no-one wants.

But that’s not to say I was entirely satisfied with the recommendations put forward by the OFT. In particular, I was concerned that they didn’t take any strong stance on the deferral process and forbearance. Many readers have contacted me to complain about the way some of these companies have dealt with them when they are struggling to pay off their debts. Indeed it seems that you are offering a very different picture to that of the OFT; who simply claim that “some” lenders show forbearance with repayment difficulties.

Not only that, but there is also the issue of clarity. As I mentioned in my previous blog on payday lenders, the majority of sites I went to offered insufficient information about the cost of deferring payment, something which is clearly out of line with the OFT’s own guidelines. One reader that emailed me complained that, when she couldn’t pay in full, two companies took interest payments from her account without telling her beforehand. Yet, in spite of this, the OFT seems not to be concerned about this issue at all, going on this week’s report.

So, in response, we at Confused.com have put together a four point plan to protect consumers from unscrupulous payday lenders:

•    The introduction of a code of conduct which includes clear, easily available information about the deferral process and any charges involved.

•    Much more stringent checks to ensure forbearance across the industry for those with ongoing debt problems. While some currently offer support for those unable to pay off their debt, our feedback from customers indicates that this is not being offered across the board.

•    A push to make payday lenders offer or promote the use of free, impartial advice in the same way banks do;

•    Support and promotion for credit unions as a source of lower cost lending.

This is something we’re pretty passionate about, so keep your eyes peeled for more on this subject on our site and in our next newsletter. Until then, we want to hear from you.

If you have dealt with a payday lender, we want to hear your experiences – good or bad. Just comment below, email me at stephen.jones@confused.com or tweet them to us @confused_com.

Payday Loans: Know Your Rights

Offering staggering annual percentage rates in the thousands, it’s easy to criticise payday loan companies for profiteering on the needy. What’s worse, though, is that borrowers could be paying even more than they realise when entering such an agreement. Confused.com’s Stephen Jones explains...

Unlike many people I know, the biggest problems I have with payday lenders are not the astronomical annual percentage rates (APR) of 1,000 per cent plus that you see attached to them. If you do pay back over the agreed period, then these rates are nigh-on meaningless – typically you will pay around 20 to 25 per cent interest on a month’s borrowing – meaning that £800 lent will become at least £1,000 paid back the next month.

That is of course, ludicrously expensive, but at least you know about that before you take the money. Instead, my main issue is that they try to pull the wool over the eyes of vulnerable customers. Someone well versed in using financial products sensibly is likely to steer clear of one of these lenders altogether. As a result, these companies know that many of their customers – often people with a history of bad dealings with debt - will not know all the right questions to ask when entering into an agreement.

Take deferrals as an example. There is quite a good chance that, if someone feels the need to resort to a loan with such high interest, they are in a fairly difficult financial situation already. As a result, some people may well be unable to make full repayment at the first attempt. However, when attempting to find out the cost of deferring or rolling over payment one some of these websites, I ran into all sorts of difficulty.

The worst example of this was when I visited a company called Payday UK. As I searched their website, I found the following statement:

“We do understand that occasionally people will need to borrow money for a second month. We call this a deferral. You will have to repay the charges and we suggest you pay as much as possible to reduce further charges.”

Now, that’s all well and good, but what are the further charges? Are we talking tens, hundreds, even thousands of pounds? Keen to find out, I logged on to their live chat tool to ask a Payday UK adviser. This is a condensed version of our conversation:

Me: “I was just wondering if you could tell me the charges incurred if I defer payment. It’s not all that clear on your website.”

Adviser: “I cannot provide the deferral information if you do not have an account with us.”

Me: “Surely you can’t expect someone to go into an arrangement with you before knowing the costs involved?”

Adviser: “The deferral is not something you have to take out. The full deferral process is explained online, but you need an account with us.”

Me: “Is it possible to create an account without first taking out a loan?”

Adviser: “Unfortunately not.”

So, in short, I was told that I had to apply for a loan before I could find out how much it would cost me to defer payment; not what I would call great practice. Eventually, I managed to weed out some more details, although this was only after a couple of minutes of stubbornness; beyond the point at which many others may have given up.

Taking action

While payday lenders are not regulated by the FSA, legitimate lenders should have a Consumer Credit licence, issued by the Office of Fair Trading (OFT) – which Payday UK does have. In order to attain this licence, the company must adhere to OFT guidelines on responsible lending, one of which is paragraph 3.13, where the body expects lenders to explain clearly "the principle consequences for the borrower of not keeping up with repayments".

So, I sent a transcript of my conversation to the OFT, and it is now being investigated. I’d like to point out that this particular company was not the only one guilty of a lack of information – of ten such sites that I visited, only three gave any indication of the fees involved for those unable to make payments after the first month.

As a result, my guidance to anyone in need of finance is to be sure you know exactly what you’re getting before applying. If you can’t get all the information you want, walk away – invariably, they need you more than you need them.

Have you ever used a payday lender, and, if so, what were your experiences? We’re keen to know more and see what we can do to make these lenders clean up their acts, so let us know your thoughts below or email me at Stephen.jones@confused.com.

What does ‘Pre-Approved’ actually mean?

After a rather unsavoury incident at his local bank, Confused.com's Stephen Jones vents his spleen on promises of 'pre-approved' and 'guaranteed' loans...

Forgive me, I usually try to make these blogs fairly objective (don’t laugh!) but something really, really infuriated me this week. It started with a scenario you may all be familiar with: I stepped into my bank, Alliance and Leicester, to discuss some pretty dull stuff that I won’t go into.

As I gave my account details, I was told with much faux excitement by the bank clerk that I was eligible for their Santander Zero Credit Card. Having had my eye on that particular card since I joined around six months ago, I duly called up head office to find out more. The lady on the end of the phone confirmed that I was entitled to the card, and this short exchange followed:

Me: ‘But could I still be rejected once I’ve gone through a credit search?’

Bank Clerk: ‘No. There is no reason why that should happen.’

So, happy with my afternoon’s work, I duly arranged an appointment for two days later and skipped off back to work. Lo and behold, when that meeting with my bank manager came around I was politely rejected after the credit referencing went through. Not only does this now mean that I have a mark against my credit file for the search, but it’s also one I didn’t really need – I only applied for the card to utilise its 0% balance transfer deal for the first year.

Now, before you get all ‘more fool you’ on me, I accept that I should have known better and double-checked my ‘real’ eligibility with another member of staff. However, I surely can’t be the only one who has done the unthinkable and actually accepted what a bank clerk says to be true.

Indeed, the Office of Fair Trading (OFT) (remember them?) seems to agree. In fact, on the very day that my personal saga was unfolding, they released new guidelines on irresponsible lending practices. After a brief flick through, I stumbled across Chapter 5, which reads:

“Credit may not be described as 'guaranteed', 'pre-approved', or able to be provided without any credit checks being undertaken, unless it is free of any conditions regarding the financial circumstances of the borrower to whom it is to be provided.”

In short, while this sort of thing is nothing new, it is now something that the OFT have recognised as a major problem. The difficulty is, while complaining to the OFT fits nicely with my desire to support the greater good, they provide only an overview of the market and will not adjudicate independent cases. As a result, my complaint sits with my bank, and I shall let you know the results on these pages when I get them.  

Confident enough in my own ability to nag until I get my way, I open up the forum to you: have any of you been stung by these false promises from banks? Feel free to name and shame below, and, if nothing else, I’ll take solace from the fact that I’m not alone.