A top executive has predicted that several payday loans may go out of business because of a massive triple increase in complaints.
Scott Greaver is managing director of one of Britain’s biggest short-term lenders and claims that the number of complaints being handled by claims management companies could put some firms out of business.
In its annual review The Financial Ombudsman Service (FOS) reported: “Looking in particular at high-cost credit, payday loans alone accounted for more than 17,000 new complaints. And we found in around six in ten cases that people hadn’t been treated fairly by their lender.”
The service went on to say they received almost 11,000 new complaints about payday loan mis-selling between April and June this year – up from just over 3,000 for the same period last year.
Ombudsman John Wightman said: “This year we’ve heard from many people who’ve taken out high-cost instalment loans as a way of refinancing unaffordable payday loans.
“However, when people have been struggling to repay an existing payday loan, it’s not always appropriate for the lender to offer more expensive credit – even if the monthly repayment looks more manageable.
Out of business
Mr Greaver of Elevate Credit said: “It could really change the face of who are offering services. Our company’s doing well, but we’re probably a bit of an anomaly — these kind of CMC actions are very likely going to put some of our competitors out of business.”
His statement comes less than a month after the sector’s biggest lender, Wonga, blamed the increase in complaints for its need of a £10 million injection of capital to stay in business.
In a statement at the time, Wonga said: “In recent months the short term credit industry has seen a marked increase in claims related to legacy loans, driven principally by claims management company activity.
“In line with this changing market environment, Wonga has seen a significant increase in claims related to loans taken out before the current management team joined the business in 2014.
“As a result, the team has raised £10 million of new capital from existing shareholders, who remain fully supportive of management’s plans for the business.”
The payday loan industry grew rapidly in the early years of this century in the UK, providing short-term loans for clients with high rates of interest. But if the borrower did not repay the loan on time then penalty clauses sent the debt rocketing.
The rapid rise in the number of complaints prompted the Office Of Fair Trading (OFT) to start an investigation into the way business was being carried out. In 2013 the OFT produced a report in which highlighted a string of problems:
- a failure to work out whether people could afford the loans
- aggressive debt collection practices
- a failure to explain how repayments are collected
- a lack of sufficient forbearance for those who cannot afford the repayments.
in 2015 the newly formed Financial Conduct Authority (FCA) took over responsibility for regulating the industry and produced a new set of rules which limited the number of rollovers, fixing default fees which were then capped at £15 and a cap on the overall cost of loans meant borrowers would never have to repay more than double what they originally borrowed.
Read about how housing benefit tenants are being turned away by agents here:
“The industry has since been transformed, but the current crop of mis-selling claims are understood to relate to events before 2014.”