Irresponsible lenders '˜trapping people in debts they can't afford'

PAYDAY LENDERS have been accused of 'irresponsible behaviour' which is trapping people with loans they cannot afford as calls were made for the financial watchdog to increase its regulation on the industry.
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Citizens Advice found that some companies were still failing to carry out basic checks to make sure borrowers can afford to pay back loans.

Results published today of a survey of more than 400 people who had attempted to use payday loans revealed that one in four had not, or could not remember, being asked questions about their financial situation or ability to repay a loan.

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A separate study of Citizens Advice staff and volunteers showed that 27 per cent said inadequate credit checks were the main cause of problems to the people they help.

The research found that fewer problems had been reported since a cap on payday loan interest rates was introduced in January 2015.

But amid evidence that so-called alternative lenders extended their reach to middle income families during the economic downturn, Citizen’s Advice has claimed more needs to be done to tackle rogue lenders.

Its chief executive, Gillian Guy, said: “Irresponsible behaviour by some payday lenders is trapping people with loans they can’t afford.

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“New measures and guidelines from the Financial Conduct Authority have helped to clean up the market and the number of people turning to us for help has dropped significantly.

“But it’s clear some payday loan firms are flouting the FCA’s guidance and selling people loans costing hundreds of pounds that they struggle to pay back.

“The time has come for the FCA to turn its guidance into rules, forcing every single payday lender to carry out rigorous financial checks on potential borrowers to prevent people falling into deepening debt.”

Citizens Advice helped one 33-year-old man who was granted a payday loan following checks despite suffering from depression and alcoholism, having no permanent address, being previously declared bankrupt and having only benefit income.

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The report finds that half of these borrowers are still getting into difficulty paying back their loans. Those surveyed said it was easy to get a payday loan, using online and phone applications, with few requiring credit checks.

The study also highlighted new methods being used to collect payments from people’s accounts.

Citizens Advice found cases where a payday lender asked people to share their internet banking details so a lender could directly access their account and adjust funds without advance permission from the borrower.

Initatives have been launched in Yorkshire in recent years to tackle rogue money lenders.

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A service designed to divert people away from expensive payday lenders was launched in Sheffield last year in what was thought to be the first of its kind nationally.

The brokerage service, Sheffield Money, works with families with financial issues to put them in touch with reputable firms.

And a charter was launched in York – one of the North of England’s most affluent cities – in 2013 to highlight the perils of dealing with loan sharks while council staff were given training to spot potential cases.