This was an attempt to avoid strict regulation by cleaning up their own act, following pressure from ourselves and others over how the actions of some lenders are leading people into massive debts.
The charter outlined a number of very laudable aims, and we said at the time that we warmly welcomed it – provided that the lenders actually stuck to it.
The Citizens Advice Bureaux service across the UK has spent the last six months monitoring evidence on that, by gathering information directly from payday loan customers about how they have been treated. Last week some of the interim results of that research were published. And while some lenders have improved in some areas, the general picture is not good.
We continue to gather that evidence, and we urge anyone who has taken out a loan since 26 November last year to help us by completing our online survey. But many lenders did not even sign the charter. And the evidence so far suggests that many of those who did are flouting the promises they made, and so the charter has had little impact on curbing the excesses of this growing industry.
Payday or short-term loans have become huge business over the last few years, particularly with the recession and the growth of the internet and text message marketing. The CAB service has always dealt with many debt cases, but in recent years we have seen a significant shift in types of debt: fewer credit card cases and more payday loans. Payday lenders’ use of smart advertising campaigns, and the ease with which they can get cash into your account, makes these loans seem attractive to anyone – particularly young people and those who can’t get credit at banks or credit card companies.
These very same factors, however, are the problem. Too many people who are on low incomes are drawn into the spell without considering the consequences. And the companies’ advertising has been very adept at encouraging their potential customers not to read the small print and consider the basic questions: what will I have to pay back, and when?, will I be able to do that? and ultimately, can I afford this?
So what did November’s voluntary charter promise? Well, it made clear commitments on a number of specific areas that we and other campaigners have highlighted as problems. These included better pre-loan credit assessments, fairer methods of collection, and more help to customers who get into re-payment difficulties.
It sounded good. And – significantly – it showed that the lending industry accepted that there were problems that had to be addressed. Unfortunately, in all of these areas and others the evidence we’ve gathered so far shows that many lenders have not been complying with their new promises, and that too many families are still falling into huge debts as a result. Moreover, the charter does not even address some of the most basic problems – such as the huge interest rates that are charged on such loans (in some cases more than 4,000 per cent).
So it would appear that, for this industry at least, voluntary codes may not be enough after all, and that stricter regulation is what is needed to protect people from the misery of unmanageable debt.
For more information on the charter and on our payday loans campaign, please see our website www.cas.org.uk/paydayloans. But we are very keen to continue gathering evidence from anyone who has taken out a payday or short-term loan since November 26 last year. We want to hear from you, whether your experience was positive or negative. Our survey takes just a few minutes to complete and it will help you decide whether you have grounds to complain about the lender. You can find the survey at that same web address – or go direct to http://www.surveymonkey.com/s/ScotlandPDLs.
l Lucy Manson is head of the Community Action Team at Citizens Advice Scotland