Payday lenders fail to carry out customer credit checks

  You might think that payday loan providers would lead by example, by protecting their own finances against bad debts.   However, Citizens Advice has found that many payday lenders are failing to carry out even the most basic credit checks on their customers, making it impossible for them to know whether the debtor canRead More

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You might think that payday loan providers would lead by example, by protecting their own finances against bad debts.

 

However, Citizens Advice has found that many payday lenders are failing to carry out even the most basic credit checks on their customers, making it impossible for them to know whether the debtor can afford their repayments.

 

In the payday loan industry, where interest rates become punitive very quickly if the debt is not repaid, this could have adverse consequences for the typical borrower.

 

According to Citizens Advice, 65% of payday loans do not include a standard credit check, despite the industry’s customer charter, launched in November 2012, which pledges to check that customers can afford to take out a loan.

 

Citizens Advice chief executive Gillian Guy says: “The knock-on effect of their irresponsible lending is devastating for families as they become consumed with debt.

 

“Many find they have no money to put food on the table, pay the bills or get to work, as lenders drain their bank account in a bid to claw back the debt.”

 

The research also found:

 

  • 84% of lenders did not treat their customers with sympathy;
  • 71% did not explain the costs associated with extending a loan;
  • 85% did not freeze interest and charges when the customer informed them of repayment problems.

 

The figures are based on research conducted between November 2012 and March 2013, a period during which 11,000 people approached Citizens Advice for assistance with payday loan problems.

 

Over the past four years, the issue has increased tenfold in terms of the number of applications for advice received by Citizens Advice, leading the organisation to call on the payday loans industry to stick to its customer charter, and stop irresponsibly lending.

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