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Stock market news today - How payday loan bullies are stealing your cash : Payday loan companies have been caught threatening customers, grabbing cash without permission and rolling over debts as many as 12 times.
A devastating report has revealed how these controversial firms, which offer short- term instant loans with annual interest of up to 14,000 per cent, are leaving customers struggling with massive debts and unable to buy food or pay bills.
Payday lenders claim they are
performing a public service — making it easier for borrowers who can’t get easy credit from banks to pay bills. They say their customers are generally satisfied.
But the investigation by the Office of Fair Trading (OFT) revealed an 800 per cent jump in the number of complaints about such companies in just two years.
It also discovered these firms were dipping into customers’ bank accounts without asking — leaving borrowers unable to meet essential living costs.
A spokesman for debt charity StepChange said: ‘This report reveals the systemic failures at the heart of the payday loan industry. This is its last chance to show that it’s serious about protecting customers from the rogue elements with which the sector appears to be riddled.’
The OFT found some lenders were actively encouraging customers to delay paying off their loans in a process called rolling over.
This means customers don’t pay back their original borrowing within the agreed time and roll it over for another few weeks.
When doing this, customers are hit with huge charges and extra interest, which can cause the size of a debt to balloon.
For example, a borrower with QuickQuid — one of Britain’s biggest lenders — who rolled over a £400 loan the maximum of five times over two months would see their debt swell to £1,286 — more than three times the amount they had originally borrowed. The report revealed that 80 per cent of firms fail to check whether borrowers could afford the extra costs, and let customers roll over loans up to 12 times.
Others did not put a limit on the size of debts, so loans ran out of control even faster.
Payday firms also failed to check how many loans a borrower had at one time.
StepChange said it had seen borrowers juggling as many as 36 loans at once and owing tens of thousands of pounds.
But when borrowers start to struggle with their repayments, they are often tormented by their lender.
The OFT found some payday lenders would bully customers, constantly ringing them at work or home and refusing to deal with debt charities.
It is investigating several firms, and has issued a strongly worded warning to payday lending trade groups, saying they need to improve urgently.
Britain’s biggest payday lender Wonga says it has not received a letter from the OFT saying it is being investigated. Debt charities say the average payday loan borrower owes £1,458, typically more than their monthly salary. Some owe as much as £17,000.
An estimated three million people turned to payday lenders in the past year.
There are around 250 of these firms in the UK, and they are raking in an estimated £1.9 billion a year from desperate borrowers who can’t get credit from their banks.
A spokesman for payday lenders’ trade body the Consumer Finance Association says: ‘We understand the OFT’s concerns around some of the practices adopted by some lesser players in the payday- lending market.
‘Our biggest advocates are our customers themselves. So as well as highlighting areas of poor practice, the OFT must acknowledge the high levels of satisfaction and the value our customers place on short-term credit products.’
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