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Payday lenders “failing” on credit checks

Payday lenders are failing to carry out credit checks on all borrowers, a report from the Citizens Advice Bureau (CAB) has found.


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A new report released by the CAB found that those who did not go through credit checks were nearly twice as likely to have trouble repaying their loan as those who did remember having checks.

 

“Payday loans after the cap” investigates the state of payday lending since the Financial Conduct Authority (FCA) introduced a cap on payday loan interest rates and fees in January 2015.

 

The report also highlights a new method being used by payday lenders to collect payments from people’s accounts.

 

Cases were discovered in which a payday lender asked people to share their internet banking details, so the lender could directly access their account and adjust funds without advance permission from the borrower.

 

The charity helped one woman who was asked to share her online bank details when taking out a £180 payday loan. Her lender went on to add additional loans into her account every time her balance dropped below £50, or to take a loan repayment when the account had more funds.

 

Citizens Advice found that nearly 40 percent of payday loan firms have left the market since 2013 and since the FCA cap there has been a 45 percent decrease in people calling with payday loan problems.

 

Despite this Citizens Advice still believe the FCA could further tighten its rules and suggests it forces all lending firms to carry out rigorous checks on people’s finances before agreeing new loans.

 

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

 

“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.”

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