People in financial difficulty are still being irresponsibly lent to and treated poorly, according to a new report by StepChange Debt Charity.
Nearly two years on from payday loan regulations being implemented by the Financial Conduct Authority (FCA), the proportion of people coming to the charity with payday loan debts has fallen from its peak of 23% in 2013 to 16% this year.
But the charity says people still build up multiple loans, and affordability assessments undertaken by lenders are still not always effective. Its survey of over 500 clients who had taken out payday loans after the regulations came into force, found that 26% did not think their lender took reasonable steps to check they were able to afford to repay.
Moneywise reported earlier this month how many payday loan borrowers are challenging the affordability of their loans and winning refunds. See our guide on how to claim.
StepChange adds that the poor treatment of borrowers struggling with loans also continues. Its survey reveals that after telling their lender they were struggling to repay, 21% continued to have charges and interest added to their debt, less than a third (29%) were given an affordable repayment plan, 11% were threatened with legal action, and 4% were offered another loan.
In addition, the charity is concerned about the rise of so-called ‘installment loans’. These loans are lent over periods of two months to a year – as opposed to traditional payday loans, which are lent for up to 30 days. While these are covered by the FCA’s regulations, StepChange says these loans carry very high interest rates, which means borrowers may end up paying more than they would for a traditional payday loan as interest is applied over a longer period.
“More affordable borrowing needed”
Mike O’Connor, chief executive of StepChange Debt Charity, says: “Regulation can make a significant difference to broken markets and FCA action over the last few years has gone some way to fixing the worst excesses of payday lending, but there is clearly still work to be done.”
The charity is calling for the FCA to examine whether there is a need for stronger rules to be implemented, while it also wants the Government to look at new ways to provide greater access to more affordable credit.
Mr O’Connor adds: “Poor lending practices and the poor treatment of people in financial difficulty have serious consequences. They trap people in a cycle of repeated borrowing and as their balances continue to mount, so does the stress and anxiety that comes with severe problem debt.”