Hard-up consumers are being exploited by payday lenders who drain their bank accounts using continuous payment authorities (CPAs), Isle of Wight Citizens Advice Bureau has warned.
Citizens Advice has seen evidence of money being taken without permission or warning and sometimes even after loans have been paid off.
Grounds for a complaint
New national figures reveal that one in three complaints about payday loans made to the Citizens Advice consumer service were because of CPAs. Nine in ten payday loan customers who complain about the controversial payment method could have grounds for a complaint about unfair treatment.
An in depth analysis of 665 payday loan customers who contacted the charity’s consumer service between January and June 2013 found that 32% (201 people) had complaints about CPAs. Of these:
9 in 10 could have grounds for a complaint to the Financial Ombudsman Service1 in 5 were already in financial difficulty or on a debt management plan1 in 6 had money taken without their authorisation.1 in 6 said that the payday lender used a CPA to take more money than they had originally agreed.
Money taken before the due date
Citizens Advice also heard from people who had money taken before the due date, after their loan was paid off or had more money than they had expected taken.
The new figures come as the charity calls for tighter controls on payday loan advertising, and encourages the public to fight back and report irresponsible adverts.
Adverts target the vulnerable
The bureau has raised concerns over adverts which target the vulnerable, mislead consumers, or focus on the speed rather than the cost of borrowing. Many payday loan ads use celebrity endorsements or focus on glossy lifestyles to hide the reality of a life in debt.
Isle of Wight CAB wants ‘health warnings’ on payday loan websites, meaning that a warning page would appear when people access the loans online, so that consumers are fully aware of the risks before they decide whether to go ahead.
Code of conduct called for
The national charity also wants to see a sector-specific code for payday loans ads, like there is for gambling. This should include a ban payday loan ads before 9pm, and ensure that lenders tell customers what will happen if they struggle to repay the loan.
Lee Hodgson manager of Isle of Wight CAB, said:
“We see a whole range of problems with irresponsible payday lenders. We help people who have been victims of fraud, given loans despite having no income and hounded by lenders at home and at work. Now, we’re helping people to fight back.
“Misuse of CPAs can leave people without money to eat, pay rent or get to work, and can force people further into debt to stay afloat. If you’ve been badly treated, and the lender hasn’t put right their mistake, then you can complain to the Financial Services Ombudsman.
“We’re also concerned about irresponsible advertising on daytime television, public transport, billboards and online. We want people to feel confident about reporting adverts which target people who are already in financial difficulty, or mislead consumers by trying to cover up the true cost of loans.”
Bank accounts drained so need to borrow more
CPAs are often used by payday loan firms to collect repayments directly from someone’s bank account. They should not be used to take money or change repayment amounts without warning, but a creditor has flexibility over when and how much money they take from someone’s account, so can be used to remove any amount at any time.
In some cases, bank accounts are completely drained, leaving people with no option but to borrow more to cover basic costs like food or rent, and face high overdraft fees and late payment charges if there isn’t enough money to cover all payments.
Your right to cancel CPAs
Consumers have the right to cancel CPAs before payment is taken, but many who try are passed between banks and payday lenders who both claim that they can do nothing to stop the money from coming out.
Isle of Wight Citizens Advice Bureau is calling on banks to respect their customers’ right to cancel CPAs, and welcomes the Financial Conduct Authority’s recent ruling that banks must end agreements themselves when the customer requests it.
Payday loan customers can provide feedback on their experience of continuous payment authorities through the Citizens Advice payday loan tracker.