'Mistreated' customers need to ‘fight back’ against payday loan companies

Payday lenders are mistreating customers and need to be held to account, Citizens Advice says. Here's how to make a complaint.

Three in every four payday loan customers have been treated unfairly and could have grounds for an official complaint to the Financial Ombudsman, research from Citizens Advice has revealed.

It also found that in more than a third of cases money had been automatically taken from a customer’s account without prior authorisation.

It is now urging customers to fight back against these lenders and report them to the Financial Ombudsman Service (FOS).

Payday loans

In the first six months of the year Citizens Advice analysed 665 payday loan cases in the UK.

It found that one in five were possible cases of fraud, where the lender was chasing the wrong person for repayment of a loan. One in 10 also related to lenders treating people unfairly who were in financial difficulty.

In just over one in ten (12%) of cases customers were harassed with phone calls and text messages urging them to take out another loan, rather than being offered an affordable repayment option. This is an area which payday lenders are often criticised, with over two-thirds (71%) of borrowers saying they were put under pressure to roll over a loan.

Customers were also left in the dark about how to complain, with four in five not being told where to go if there was a problem with the loan.

This research follows on from a report in May which showed that payday lenders were breaking 12 out of 14 promises they made to treat customers fairly. Reports from the Office of Fair Trading (OFT) earlier in the year also showed that 38 out of 50 payday lenders it inspected failed to comply with at least one of the complaint handling rules set by the FOS.

Citizens Advice campaign

A month-long campaign has been launched by Citizens Advice to urge people to proactively complain about payday lenders.

Between April and June this year there were 160 complaints made about payday lenders and nearly three-quarters (72%) were upheld in favour of the customer.

When this happens a lender can be ordered by the FOS to put things right – such as by repaying interest or default charges, or refunding loan payments.

How to complain to the ombudsman

The first step if you have a problem with a payday lender, or any other financial institution, is to write a letter to it. This must include a list of everything you think the company has done wrong, and what you think needs to happen to solve the problem.

The lender then has five days to acknowledge the complaint, and eight weeks to properly respond. If it hasn’t replied after this time, or you’re not happy with the reply, you can take the complaint to the FOS to investigate.

You need to do this within six months and you can download a complaint form from the FOS website. Our article – How to complain to the Financial Ombudsman Service – also has more information.

What to do if you can’t pay off your loan

Three out of four borrowers included in the Citizens Advice study said they had problems repaying a loan. But there are much better options around then taking out another loan – which many lenders will pressure people to do.

The first thing you should do is talk to the lender and tell it you're struggling. The company in question should accept a reasonable repayment offer. It should not ring you at night, or more than once a day, to demand the money back.

You can also get free and confidential advice from your local Citizens Advice bureau or a debt charity such as Step Change. They can speak to the lender for you and ask about options such as an interest holiday and can also provide you with a free debt management plan.

More on payday loans

The best alternatives to payday loans

How to tackle payday loans

How payday loans can scupper your chances of a mortgage

The dangers of multiple payday loans

Payday loan companies are out of control, says Citizens Advice