Bank Fees Are Outrageous

We need protection against the loan sharks; Ineffective regulators have failed to get to grips with “predatory” lenders who leave vulnerable customers struggling with spiralling debts, according to a damning report by a powerful committee of MPs.

Byline: Neil Atkinson

THE “shabby end” of the credit market was costing
borrowers PS450m a year, the Public Accounts Committee said, but the

Office of Fair Trading

 (OFT) had not taken the tough action needed to
protect consumers.

Committee chairwoman
Margaret Hodge

 said the OFT had been
“ineffective and timid in the extreme” in tackling the
problem.

The MPs called for the requirement to display the annual percentage
rate (
APR

) of interest on credit to be replaced with a clearer statement
of the total amount repayable on the loan, to help consumers understand
and compare different products.

Mrs Hodge said: “With money getting tighter and banks lending
less, consumers are increasingly having to turn to alternative providers
of credit. Some of these lenders use predatory techniques to target
vulnerable people on low incomes, encouraging them to take out loans
which, when rolled over with extra interest, rapidly become out of
control debts. “Such
disgraceful
  
adj.
Bringing or warranting disgrace; shameful.


dis·graceful·ly adv.
 practices by the shabby end of the
credit market are costing borrowers an estimated PS450 million or more
each year. “Meanwhile, the Office of Fair Trading, the regulator of
this sector, has been ineffective and timid in the extreme. It passively
waits for complaints from consumers before acting. It has never given a
fine to any of the 72,000 firms in this market and very rarely revokes a
company’s licence.

“It doesn’t understand the market – how much each firm
lends and who its customers are – and can’t be certain if directors
of companies that have run into trouble are now running other
companies.”

She criticised the OFT for failing to increase its PS1,075 fee,
which applied even to large credit card firms, in order to “raise
its game as a regulator” with the extra revenue.

In March the OFT handed 50 payday lenders a 12-week deadline to
prove their good behaviour or risk losing their licences to trade, which
the MPs said was an “encouraging” step.

Mrs Hodge said: “It is encouraging to see that, since our
hearing, the OFT has announced plans to crack down on unscrupulous
behaviour by the 50 largest payday lenders.

“We will be expecting the OFT to show that this marks the
start of a genuine step up from the inadequate approach that was evident
at our hearing – and to follow through on its threat to
revoke
 v. to annul or cancel an act, particularly a statement, document, or promise, as if it no longer existed.
 licences
if these lenders do not mend their ways.” The report said the OFT
“lacks basic information about the consumer credit market, such as
the amount of lending by each firm, the products sold by each firm and
the types of consumers buying the products”. “It has not
attempted to quantify the level of harm due to firms not complying with
the Consumer Credit Act. This basic information, broken down by types of
consumers and types of products, is essential if the regulator is to
better understand the market and target its resources in the most
effective way to protect customers”, the MPs said.

The OFT will be replaced as the consumer credit regulator by the
Financial Conduct Authority next year, and the report said the new
watchdog “needs to have a fundamentally different and more robust
approach”.

“It needs better intelligence so it can prevent consumer harm
and it should apply tougher sanctions more swiftly when it is aware of
poor practice,” the MPs said.

The new ‘victims’ of loan sharks and payday firms SUPPORT
worker Sue Smith deals with some of Huddersfield’s most needy
people. Her clients include the homeless and those with drug or alcohol
problems.

But she admits there is a growing concern over other
“victims” – those becoming customers of loan sharks and
payday
loan

 companies.

She has heard horror stories of people risking losing their homes
because of repayments to companies and of people with mental health
issues being offered cash on exorbitant terms.

Her concerns come as a new survey shows customer dissatisfaction
with financial firms has reached record levels.

There were 500,000 new complaints dealt with in the last year, the
Financial
Ombudsman
  [Swed.,=agent or representative], public official appointed to deal with individual complaints against government acts.
 Service revealed. And among that number was a big
rise in complaints about payday loan companies. There were 542
complaints about payday lenders, marking an 83% year-on-year increase.

Many complaints about payday firms involved them unexpectedly
draining struggling borrowers’ accounts of cash. Mrs Smith works in
Huddersfield with the charity Homeless Alcohol and Drug Support.

She has more than 80 clients, often referred to her through drop-in
advice centres at the Huddersfield
Methodist Mission

 or through
health
services

 Managed care The benefits covered under a health contract
.

“One client of ours has been targeted repeatedly. He searched
on the internet and came up with a loan company who gave him money but
then demanded big repayments and passed on his details including his
bank account to other companies.

“We also had a couple with mental health issues who came to us
having been targeted. “I believe many people are turning to the
payday loan companies or loan sharks for help without realising how much
trouble it can bring.

“They get landed with high repayment charges, with so-called
membership fees and with text messages offering them even more money,
which sounds so tempting at the time.

“I worry that many of them are likely to come to harm by
turning to these people,” Natalie Ceeney, chief ombudsman, said:
“We have seen a much stronger consumer voice in the last year with
people becoming more aware of their rights and less willing to put up
with poor customer service.

“As levels of confidence in
financial services

 have eroded, it
is disappointing that we still haven’t seen any significant
improvement in complaints handling”.

Payday loans are huge business. A search on Google under
“payday loans” brought an
astonishing
  
tr.v. as·ton·ished, as·ton·ish·ing, as·ton·ish·es
To fill with sudden wonder or amazement. See Synonyms at surprise.
 82m responses. Fresh
evidence of “out of control” payday lenders failing to act
responsibly and hounding people for money was released by a debt advice
charity.

Citizens Advice said it had seen cases in recent months which
included payday lending to people who were aged under 18, had mental
health issues or were drunk when they took out the loan.

The Citizens Advice analysis came from 780 cases reported to it
between November 2012 and May this year.

It also found that people were being chased for loans they had
never taken out and customers were being “hounded” at their
home to shame them into paying up.

Struggling borrowers’ bank accounts were being drained of cash
“without any warning” by lenders using a type of payment
agreement called a continuous payment authority (
CPA

), the charity said.

. ? The Huddersfield group runs drop-in advice sessions each
Thursday (10.30am-noon) at The Sikh Leisure Centre in
Springwood
  
n.
Young, usually soft wood that lies directly beneath the bark and develops in early spring.
.

‘Addictive’ loans a danger for families HUDDERSFIELD
insolvency expert Peter Sargent said the biggest problem with pay day
loans is that they can become addictive.

“It is a bit like drugs.” he said. “Take one and
feel happy, take another and feel happier.” Mr Sargent, a partner
at rescue and recovery specialist Begbies Traynor, said: “People
take out a loan at a n outrageous rate of interest, struggle to pay it
back and take out another loan to repay the original one.

“There is a place for pay day loan companies, but they should
be heavily regulated to make sure they lend responsibly and not to
people who do not fully understand what they are doing.”

But he added: “You also have irresponsible people who find it
too easy to borrow money. “Some people have been known to take a
pay day loan on a Saturday evening, collect the money from the cash
machine and spend it on a night out,” he said.

“People need to be borrowing in a responsible way. If you
borrowing from a pay day loan company on a regular basis, you definitely
have a problem.” Mr Sargent said: “If people really have no
money, the bank won’t give them an overdraft and they have run out
of credit on their credit cards, they would be better off approaching a
credit union or getting professional advice from a debt charity.”