Call to fight back on payday loans

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cashPayday loan customers are being urged to "fight back" if they have been mistreated by a lender by making an official complaint to the ombudsman.

Citizens Advice said that in three-quarters of cases (76%) it has examined, borrowers would have grounds to take their complaint to the Financial Ombudsman Service (FOS).

The charity launched a month-long campaign today calling for payday customers "not to let predatory lenders get away with treating them unfairly".

Citizens Advice analysed 665 payday loan cases reported to its consumer service in the first half of this year and found that one in five were possible cases of fraud, where someone was being chased for a loan they had never taken out.

More than one third of the cases involved lenders using a type of recurring payment called a continuous payment authority to drain people's bank accounts of cash without warning and in 12% of cases lenders pestered people with phone calls and texts rather than accept offers of payments that borrowers could afford.

The ombudsman service, which resolves disputes between consumers and financial bodies, can order firms to put the situation right if it finds in the customer's favour. This means a borrower could get a refund and compensation.

Citizens Advice chief executive Gillian Guy said: "The level of debt and hardship caused by some payday loans is absolutely scandalous and people often feel completely powerless to do anything about it.

"But consumers can fight back. If you are struggling to pay back the loan Citizens Advice can help you sort out a reasonable repayment plan and if you make a successful complaint to the Financial Ombudsman Service you could find you get a refund for an unauthorised payment or compensation for unfair treatment.

"By making your voice heard you will expose the bad behaviour of lenders and put pressure on them to clean up their act which could help stop similar problems happening to other people."

The chances are also high that the ombudsman will uphold a payday loan complaint in the consumer's favour. Of 160 complaints made to the ombudsman between April and June this year about payday loans, 72% were upheld.

A spokesman for the ombudsman service said its own research into why payday loan customers do not tend to come forward to it more often suggests that people appear reluctant to admit that they have used a payday lender.

He said: "The big message is: Nobody is here to judge you. We understand that times are hard, the important thing is to ask for help."

The spokesman said that the ombudsman service would expect a firm which has been told that a customer is struggling financially to help the consumer to come up with a solution, regardless of whether or not the firm has made a mistake.

Giving advice to struggling borrowers, Citizens Advice said lenders should accept a repayment plan which is reasonable and should not be contacting the borrower's employer for money or ringing during the night.

Consumers should initially make their complaint directly to the lender but if it cannot be resolved they can ask the ombudsman to step in.

Payday lenders have come under heavy scrutiny in recent months following an investigation by the Office of Fair Trading (OFT), which referred the industry to the Competition Commission after finding "deep-rooted" problems.

Issues it raised included lenders not carrying out proper affordability checks, meaning the borrower cannot afford to pay their loan back on time and is forced to roll the loan over, meaning the cost of the debt balloons.

Fifteen out of 50 lenders which were given a deadline by the OFT to prove their business practices were up to scratch have since said they do not plan to continue operating in the payday sector.

Payday lenders have said they have been working to improve standards and make sure loans are only given to those that can afford them. They have said that rogue lenders which have tarnished the whole industry should ship out.

Complaints can be made to the Financial Ombudsman Service consumer helpline on 0300 123 9 123 or 0800 023 4567 or emailed to complaint.info@financial-ombudsman.org.uk.

Consumer minister Jo Swinson said: "Unscrupulous lenders should not be getting away with shoddy treatment of their customers, and it has to stop. We are taking tough action to protect consumers from irresponsible lending, which has led to 15 firms leaving the payday market.

"The new regulator in 2014 will have strong powers to clean up the industry, such as banning products imposing unlimited fines and ordering firms to give consumers their money back. Payday lenders are on notice - if they don't take action to fix their problems they will face further complaints and further sanctions.

"Consumers should also be aware of what types of practices are not OK. That's why I fully support Citizens Advice's work to help people know what their rights are and how to complain when things go wrong."

Russell Hamblin-Boone, chief executive of the Consumer Finance Association, which represents short-term lenders, said: "One complaint is one too many.

"We encourage customers of CFA members to make direct contact with their lender if they feel that they have been treated unfairly or to arrange a payment plan to help them through a difficult financial period.

"Working closely with Citizens Advice and their bureau network, we have recently implemented a hotline service for CAB advisers in two pilot regions so that they can speak directly with hardship teams within our members' businesses to resolve complex debt problems on behalf of their clients swiftly."

© 2013 Press Association