When the Financial Ombudsman released its annual complaints report earlier this month, the news that payday loan complaints had risen was pounced upon. This was an increase – and a significant one at that – despite tighter measures having been introduced to regulate short term loans. However, the ombudsman itself said the increase, “reflected people’s growing awareness of their rights when things go wrong”. This whole subject of consumer awareness is an interesting one. With ‘how-to’ sites providing complaint letter templates online, and a fee charged to the loan company each time the ombudsman takes on a case whether it’s upheld or not, could this be the breaking of the payday lending industry?
First off, a sanity check. The ombudsman investigated 340,899 new complaints in 2015-16, of which less than one per cent – 3,216 – were about payday loans. PPI was still the most complained about product, but with payday loan complaints up from 1,157 the previous year, headlines about the 178 per cent increase wrote themselves. After all, no-one wants to write about PPI anymore.
I spoke to one payday lender who said a significant proportion of the complaints they receive use the templates found online and that this is damaging for two reasons – it means complaints don’t give details they can use to gain insight into where they might need to improve, and it turns complaints handling into a faceless, almost automated process where providers respond with templates of their own.
Once a case is taken on by the ombudsman, the provider is charged a case fee of £550 regardless of whether the complaint is eventually upheld or not. It’s hard to understand why the business should incur expense when they have acted appropriately. They could be putting that investment into customer service.
‘How-to’ sites also exist for mis-sold PPI, and we all saw how claims volumes there grew to a level where they became almost an industry in their own right.
This is a worry for payday lenders if the complaints process becomes open to abuse. If customer liability to repay sound, legitimate loans – perhaps ones that have already been paid back – is called into question.
Consumer awareness of the obligations of finance providers is a positive thing. It gives them a deeper understanding of the two-way contract they’re entering in to, with responsibilities on both sides. However, there needs to be a balance between corporate and personal responsibility.
The ombudsman’s report is the latest in a string of recent developments that’s made it a tough month for payday lenders. The Consumer Financial Protection Bureau has proposed new regulations for the industry in the US and Google only recently announced a ban on payday loan ads from July.
Regulations and controls around payday lending practices have been tightened and promote transparency and customer affordability. This should mean fewer future claims around loans being provided that weren’t affordable. It would be regrettable if payday loan providers, running scared from the potential for PPI-sized claims volumes, withdrew their services. Then where would their customers turn? These are often customers who are turned down by traditional lenders. They may instead turn to undesirable, unregulated options for credit which will always exist for those determined to find them.