According to the Financial Ombudsman Service (“FOS”), loan affordability complaints are on the rise. During the past twelve months, some 6,968 complaints have been subject to review (http://www.financial-ombudsman.org.uk). The FOS also state that the number of complaints about payday lenders has increased substantially. In the first half of 2016 alone they received over 4,000 complaints.
It is generally accepted that today’s consumers have a much better understanding of “affordability”. That said, it seems obvious that this rise in complaints is perhaps due to third party advice and interested parties.
Organisations such as the Citizen’s Advice Bureau are able to provide unbiased legal advice. There are also many online and free resources available, such as affordability calculators. These independent third parties are able to offer both legal and practical advice. High street lenders are now requested to provide contact details for these organisations. Contact information is often supplied with final demands or requests for payment.
The underlying issue behind loan affordability complaints
Of course, this also raises concerns about the issue of affordability. If a consumer finds themselves in debt – how did it happen? How were they able to borrow a specific amount of money (or even at all)?
These questions put lenders under increasing scrutiny with regard to their various lending policies. These should always ensure affordability – particularly given that most difficulties could stem from inappropriate lending.
There are, of course, certain regulations in force to protect consumers against inappropriate lending. That said, many complaints are still made about a lender’s unwillingness to assist consumers. Common complaints, for example, include a lender’s failure to enter into repayment plans.
This can have a massive impact on the consumer and can occur for many reasons. The FOS state that circumstances often include divorce, unemployment, and even poor money management.
Unfortunately, the FOS are unable to intervene with complaints from the outset. The consumer must first follow the lender’s individual complaints process. Suffice it to say, this can process can often take weeks – if not months – to complete. In turn, this can only serve to make the consumer’s financial position even worse.
How do FOS complaints work?
The FOS have a firm commitment to treating all their customers with respect. This means they must deal with each complaint on its own merit. In dealing with complaints the FOS will consider various factors which may include:
- looking at the consumer’s income and outgoings
- what information the consumer had access to during the application and approval process
- whether the consumer’s individual circumstances were subject to review during the application process.
- what the consumer understood their repayments and repayment term would be
Suffice it to say, there is a “no size fits all” solution. Each complaint is subject to rigorous review based on the consumer’s situation.
What are the benefits for consumers?
For consumers, of course, this is encouraging news. It means they now have some form of redress in the event of a product being mis-sold. This is particularly true with regard to affordability.
Remedies might include help with interest or bank charges. The lender might also offer a repayment break until the consumer’s financial situation changes. They might even accept part-payment of a loan by way of settlement. That said, the FOS insist that incapacity to pay will not result in the debt being “written off”. This is not the case at all.
Of course, such decisions do not always go in the consumer’s favour. Sometimes the FOS find the consumer had enough information to make the right decision. That said, the lender remains responsible for offering the product in the first place. They must always carry out thorough checks to ensure affordability.
The key question as regards suitability is whether the consumer could afford the product. To get a better understanding of this the lender (or FOS) need to consider the facts in detail. This will include consideration of what the lender perceived at the time of sale.
The concept of vulnerability
During the complaints process, it is also important to establish whether the consumer was “vulnerable”. This can include elderly customers or even those with mental health problems and/or disabilities. It can even include consumers with a poor credit history. This necessitates full disclosure on the consumer’s part.
There are some common misunderstandings which have led to a definite increase in complaints. This is particularly true on the question of affordability. These misunderstandings include whether there was sufficient evidence for the customer’s inability to repay and also whether accurate financial information was supplied.
Also, payday loan applications may involve some inaccuracies in the process especially in cases where several brokers are involved before a loan is found.
Further evidence for rising complaints
More evidence suggests complaints are on the rise. According to an article in the Financial Times, complaints rose by 178% this year. See https://www.ft.com/content/093f1f30-228b-11e6-9d4d-c11776a5124d (requires subscription)
This article shows that over 3,000 complaints were subject to review about these loans. This is up from 1,160 in the previous year. It’s perhaps little wonder that the FOS are now seeing a massive rise in the number of complaints. Again, the whole problem boils down to the issue of affordability.
Are we going to see even more complaints?
The good news for consumers is that new regulations are now in force. These seek to protect and help consumers. Guidance also provides much clearer advice on the actual amount of interest charged.
In fact, the industry’s watchdog now predicts a definite decrease in payday loan companies in the UK. This is most likely a true reflection. Market leader “Wonga” had a record loss of £80 million on last year’s figures. That is more than double that of the previous year. That said, will this reduce the amount of loan affordability complaints currently received by the FOS? Only time will tell.
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