National Debtline sees 94% increase in payday loan debt problems

Debt charity the Money Advice Trust reports its National Debtline service took over 20,000 calls for help with payday loans in 2012, a huge record.

The figure represents a 94 per cent year on year increase, and an increase of 4,200 per cent since the onset of the financial crisis in 2007.
 
In January this year, National Debtline took a call for help with payday loans for every seven minutes its phone lines were open.
 
The Money AdviceTrust is calling on the Office of Fair Trading (OFT) to make use of new powers to suspend consumer credit licences with immediate effect where it identifies persistent bad practice.
 
Joanna Elson, Chief Executive of the Money Advice Trust, said: "Payday loans have come from nowhere to be one of the most common debt problems people face. In 2007 as the financial crisis began National Debtline took just 465 calls for help with payday loans, but last year that figure had grown to 20,013.
 
"The rapid emergence of payday lending has caught regulators a little off guard. We have waited some time for real action to be taken to help prevent people falling into a serious debt spiral with these loans. We encourage the OFT to protect consumers by suspending the licences of those lenders shown to persistently break the OFT's own guidance on debt collection.
 
"National Debtline advisers help around 100 people every day to deal with payday loan debts, some callers have taken out as many as 80 such loans. Borrowing on this scale can have serious ramifications if not dealt with properly, and advice services like National Debtline risk becoming over burdened by the proliferation of payday loans."
 
Number of call taken by National Debtline for help with payday loans, broken down by year:
 
2007: 465
2008: 776
2009: 1,244
2010: 3,330
2011: 10,301
2012: 20,013
 
The Money Advice Trust guide to payday loans
 
Lending decisions and affordability checks
 
Joanna Elson says: "Payday loans were initially designed to suit a small number of people in very specific situations, and this is something they can still do effectively. However we hear from thousands of people each year who have been lent money when it was clearly not the right option for them.

"Just like the decision to borrow money, the decision to lend shouldn't be taken lightly, and the lender must be confident of the borrower's capacity to repay within the set terms and conditions. Where some payday lenders offer to deposit money in your account within 20 minutes, we are not confident this represents a sensible practice.

"Anyone offering to transfer money into a potential borrower's account within 20 minutes of an application is unlikely to be carrying out sufficiently thorough affordability checks. We know this because for 26 years our National Debtline advisers have spoken to thousands of people each month about their finances. We know it takes longer than 20 minutes to judge someone's ability to repay a payday loan debt.

"We also know this through the experiences of the 20,000 people who contacted us last year for help with repaying payday loans. We've heard from people who have been able to get a payday loan despite being bankrupt, and from people who have been able to take out a payday loan despite having been unable to meet agreed repayments on 20 similar loans taken out in the previous months. It is clear to us that something is drastically wrong with the way these applicants are being given access to credit they can't afford to repay.

The facts
 
Payday lenders are bound by the OFT Irresponsible Lending Guidance. This says:
 
Creditors should make a reasonable assessment of whether a borrower can afford to meet repayments in a sustainable manner
 
MAT has heard countless examples where this guidance is not being adhered to.
 
Payday lenders' collection practices
 
Joanna Elson says: "The way in which struggling individuals are chased by some payday loans companies for repayment is a cause of grave concern. Lenders are required by the OFT to treat their customers fairly and with forbearance if they experience difficulties. We have noted that some payday lenders are particularly reluctant to negotiate sustainable repayment plans with borrowers, often refusing to freeze interest and charges, and demanding full and final settlements rather than more affordable monthly repayments.
 
"Many other creditor groups have recognised the importance of working within the limitations of an individual's ability to repay their debts in a sustainable way, payday lenders continue to be behind the curve in this regard."
 
The facts
 
The OFT Irresponsible Lending Guidance states:
 
Creditors should treat borrowers fairly and with forbearance if they experience difficulties.
 
The OFT Debt Collection Guidance must also be followed by all companies with a consumer credit licence. This includes payday lenders.
 
In the Guidance, the OFT sets out the kind of activities and behaviour they consider to be an ‘unfair or improper business practice'. The Guidance says creditors should:

treat borrowers fairly;
be clear about what they are doing; and
give borrowers ‘reasonable' time to repay your debts. What is reasonable will depend on the borrower's circumstances.
 
The Guidance states:
 
Putting undue pressure on debtors or third parties...is considered to be oppressive and an unfair or improper practice.
 
This includes:

contacting you too frequently or at unreasonable times;

pressurising you to take out more debt;

pressuring you to pay in full or in large instalments you cannot afford over an unreasonably short time;

not giving you a reasonable time to seek advice or put forward payment proposals;

refusing a reasonable offer of payment from you or an adviser;

making threatening gestures or statements;

trying to embarrass you in public. For example, using social networking sites or leaving inappropriate phone messages. This could also include threatening to tell a third party such as a neighbour or your family about your debts
 
Continuous Payment Authority (CPA)
 
Joanna Elson says: "We have long held serious concerns about the use of CPAs by payday lenders. We have spoken to many people who were not aware they had signed up to a CPA and so were shocked to see money taken straight from their account.

"It is important for individuals to be clear that they have the right to withdraw their consent from the CPA and to stop payments being taken.
 
"The right to cancel a CPA does not equate to the right to ignore the responsibility to repay a debt. But it does mean that individuals should have the right to control how they manage their debts.

"Taking money directly from someone's bank account to repay a payday loan debt might prevent that person making a payment on essential expenditure such as their mortgage, rent, or an energy bill - which would put them at risk of losing their home or having their gas and electricity cut off. Additionally it might make it difficult for an individual to afford essentials, such as food for their family.

"Payday loan debts rarely exist in isolation; they often sit alongside other financial problems that also require urgent attention. The practice of using CPAs to collect debts is a way for the payday lenders to jump to the top of the queue, regardless of the consequences."
 
The facts
 
CPA is a payment method often used by payday loan companies. A CPA means you give the payday loan company your debit or credit card details, and permission for them to use the card to take payment or payments from your account, to repay your loan.
 
There has been a lot of confusion about CPAs, and the right to cancel them. If you have agreed to repay your loan in this way, you can take action to stop the payment being taken.
 
CPAs are covered by the Payment Services Regulations 2009. These regulations set out how payment service providers, such as banks, building societies, credit card companies and so on, should operate payment systems.
 
The Payment Services Regulations make it clear that you can withdraw your permission for a payment, or series of payments, to be made using your debit or credit card. The regulations say the following about consent:

Part 55 (3) The payer may withdraw its consent to a payment transaction at any time before the point at which the payment order can no longer be revoked under regulation 67.

Part 55 (4) Subject to regulation part 67 (3) to (5), the payer may withdraw its consent to the execution of a series of payment transactions at any time with the effect that any future payment transactions are not regarded as authorised for the purpose of this Part."

Part 67 of the regulations deals with time limits for stopping payments. For continuous payment authorities, this will usually be the end of the business day before the payment is due.
 
If you withdraw your continuous payment authority and the money is still taken from your account, this is an ‘unauthorised transaction'. Your card issuer should give you an immediate refund. This should include any interest or charges added to your account because the payment was taken.