The City regulator has uncovered a litany of unfair practices at payday lenders including sending threatening text messages, pursuing customers for the wrong amount and misleading people about the effect of non-payment on their credit rating.In a report released on Tuesday, the Financial Conduct Authority (FCA) said its review of the payday-loans sector had found “serious non-compliance and unfair practices” in all the firms it examined, “leading to poor outcomes for many customers, and in some cases serious detriment and financial loss”. It said customers could be due compensation.
The review covered the first 12 months of the FCA’s regulation of the controversial multibillion-pound sector, and focused on how firms treated borrowers who experienced financial difficulty. It found that too many payday lenders were not acting fairly to customers who had fallen behind with payments, and uncovered “unacceptable” practices including firms offering inflexible repayment options and failing to direct people to free debt advice.
The FCA said that in some cases the situation was so bad that it had been “forced to intervene swiftly to prevent ongoing risk of harm to customers”.
Failings included:
• “Misleading and occasionally threatening” correspondence from lenders, some of which was sent to vulnerable customers. One firm sent customers text messages threatening visits to their home or workplace.
• The majority of the firms reviewed gave out “misleading or confusing” information about the impact of non-payment on people’s credit ratings.
• At every firm reviewed the FCA identified failings in systems and processes that had resulted in errors such as account balances being miscalculated, fees or charges that the lender was not entitled to charge being added to customers’ accounts, customers being pursued for wrong amounts, and payments being taken at the wrong times.
• Backlogs of correspondence, including from vulnerable customers who had fallen behind with their payments. This included medical evidence and letters from debt advisers providing crucial information about why some customers had not paid what they owed.
The FCA said that where non-compliance was uncovered, it had intervened quickly to ensure firms took specific steps to ensure the failings were not repeated in future. “In some cases, investigations are ongoing, and the regulator is working with firms to determine appropriate levels of redress for those affected,” the report said.
However, the FCA added that the industry was beginning to take a more customer-focused approach, and it had been encouraged by the steps taken by many firms over the last 12 months to change their behaviour and fully implement the rules.