Payday Lenders have failed to honour promises say Citizens Advice Scotland

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  Many payday lenders in Scotland are breaking the promises they made last year to clean up their act – according to new research published today (Thursday) by Citizens Advice Scotland (CAS).

One year ago this week, the main payday lenders published a voluntary Code of Conduct in which they acknowledged some wrongdoing in the industry, and set out a number of cast-iron guarantees to improve their operations so they offered fair and responsible lending in future.

However, according to research carried out by CAS, lenders have in fact broken most of the pledges in their own code.

CAS has been asking payday loan clients all year to report their experiences, and in the results show that lenders have in fact broken most of the pledges in their own code.

After a year-long survey involving nearly 200 Scots, it has emerged that 65% of them applied for their payday loan via text message and 21% did so online.  Over half (53%) are under 34 years old, and over a third (36%) were using the payday loan for essentials like food, fuel and rent.  Exactly half of the sample were in full-time work.

In terms of the specific pledges made by lenders in their Code of Conduct, our Report Card below shows just how badly the lenders did. The main points include:

* less than half of payday lenders in Scotland are telling people that loans should not be used for long-term financial problems;

* only 1 in 3 are checking peoples’ financial background before giving them a loan;

* only 14% of customers felt the lender was sympathetic when they got into difficulties repaying the loan; and

* only a third of lenders are warning their customers about the dangers of roll-over loans.

Commenting on the figures, CAS Chief Executive Margaret Lynch said:

“When the payday lenders published this voluntary code last year we made clear we would be watching them like a hawk to make sure they kept to their word.  Because there’s no point making promises if you don’t live up to them. Our survey results – together with the experience of other clients we see every day in the Citizens Advice Bureau – show very clearly that this Code of Conduct Is being ignored repeatedly.

“Across Scotland, CAB advisers are currently seeing over 100 cases every week of people who are in crisis debt to a payday lender. That’s a third higher than this time last year. Our evidence is that many lenders are operating in ways that result in people getting into debts they can’t handle.

“So the Payday Lenders have had their chance to clean up the industry, and they have failed. It’s time now for the regulators to step in and do it properly. We are setting out today a number of steps that should be taken to get a firmer grip on payday lenders.

“We want to see an automatic fine for any lender who breaches the official regulations, together with compensation for customers who have been wronged.  We’re also asking the Scottish government to open a Credit Union account for all 1st Year High School students in Scotland, to make people aware that there are alternatives to high-interest payday loans.”

Responding to the research, Enterprise Minister Fergus Ewing said:

“I am concerned by these Citizens Advice Scotland survey results that show that the payday lending industry is ignoring the Code of Conduct.

“This reckless approach by those peddling high interest loans reinforces the need for consumers to turn their back on these crippling loans and to consider more affordable lending solutions such as Credit Unions.

“Earlier this week i issued a call to action when I launched the ’12 days of debtmas’ campaign which highlights credit unions as sensible, ethical lenders and alternatives to high interest credit. www.12daysofdebtmas provides more information on how credit unions can be contacted.

“To protect consumers, payday lenders would be subject to tougher regulation in an independent Scotland.”

According to the survey, three quarters of companies made it clear how much it would cost in total to repay the loan.  A similar number explained to borrowers how the repayment would work.

The full list of pledges, together with the compliance, can be seen in the table below: