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Payday loans: what to expect from your lender if you’re struggling to repay

If you’re considering borrowing money, payday loans can be an expensive choice.

In this guest post, Linda Woodall, Director of Mortgages and Consumer Lending at the Financial Conduct Authority (FCA), outlines the results of their new report on how payday lenders treat customers who struggle to repay.

Payday lenders – the results of our investigation

We put the spotlight on payday lenders. We wanted to find out what happens to people who struggle to repay and found that many customers weren’t treated fairly.

Some firms had systems that didn’t work properly which resulted in incorrect balances, incorrect fees or charges being added, and in some cases duplicate payments being taken. Firms sometimes put pressure on customers via letters and phone calls by threatening legal action that they didn’t intend to take,or making empty threats to visit a customer at their home or workplace, without an intention to do so.

These practices, and others, are obviously unacceptable. We have worked with all of the firms we reviewed to get them to put things right and to ensure they are making improvements to how they treat customers who struggle to repay.

Here are some of the things you should expect from a payday lender if you are struggling to repay a loan.

What should a payday lender do?

  • treat you fairly and with due consideration and forbearance - this means they should take account of your individual financial and personal circumstances
  • communicate with you in a way which is clear, fair and not misleading
  • consider suitable ways for you to repay, taking account of your individual circumstances, for example waive fees and interest or defer repayment of arrears,
  • direct you to details of free and independent debt advice where appropriate
  • send you an annual statement if you have not repaid your loan within 12 months
  • have a policy to deal with vulnerable customers and suspend action to recover a debt if the customer lacks the mental capacity to make decisions about repaying their loan

What should a payday lender not do?

  • refuse to negotiate with you if you are developing a repayment plan
  • refuse to deal with a not-for-profit debt advice body, debt counsellor, debt management firm or with another person acting on your behalf, unless they can demonstrate that there’s a good reason for doing so
  • pressurise you to pay a debt unreasonably – for example within too short a period of time or in amounts you can’t afford
  • take disproportionate action to recover the debt, for example initiating legal action unless they have fully explored other solutions
  • make empty threats of actions which they don’t intend to take or are not entitled to take

How to report a payday lender

If you think that your payday lender hasn’t treated you fairly then you have a right to complain to the firm.

If you are unhappy with the firm’s response you are entitled to complain to the Financial Ombudsman Service.

The ombudsman service is an independent body set up by the Government which can review your complaint and, if it finds in your favour, can require the firm to put things right or provide appropriate compensation. 

This guest post is from Linda Woodall and doesn’t necessarily reflect the views of the Money Advice Service. You can find out more about the Financial Conduct Authority (FCA) and what they do on their website.

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