Examples of how customers have been treated unfairly by financial services firms “just keep coming”, according to an HM Treasury spokesman, following the recent high-profile decision by payday loans lender Wonga not to pursue repayment of 330,000 customers’ loans which were in arrears of more than 30 days.
The decision, announced in an agreement with the Financial Conduct Authority in early October, acknowledges that the initial loans provided to those customers may not have been subject to adequate affordability checks, meaning they were never likely to be repaid on time.
With very high rates of APR on payday loans, unless they are repaid in a matter of days the interest charged can begin to mount substantially in a relatively short period of time – making it very difficult to keep up with repayments over the long term.
A further 45,000 customers will not have to pay their interest or additional charges on loans with arrears of up to 29 days, although they will still need to repay the original amount borrowed.
Commenting on the case, Andrew Tyrie MP, chairman of the Treasury Select Committee, said: “Many consumers are still being treated badly by financial firms – new cases just keep coming. We will want reassurance that these firms have cleaned up their act, and Wonga may well be one of them.”
The case is a reminder to anyone providing credit that affordability checks are a crucial element in ensuring you will be able to recover what you are owed later.
Whether you are in the direct lending business or not, background checking new customers provides you with peace of mind that they are creditworthy, and may also allow you to demonstrate to any regulators in your industry that you are taking suitable steps to avoid extending a line of credit to a client who cannot afford it.