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From today's Guardian:
Which? challenges payday lenders over high missed payment fees
Consumer group says borrowers are being exploited by excessive fees and regulator must ensure all charges are fair
Payday lenders are being challenged by the consumer group Which? to justify the fees they impose on borrowers when they miss payments.
The consumer group said 10 of the 17 biggest operators in the short-term loans market had default fees of £20 or more, while four charged £25 and above.
Consumer law laid out in the Unfair Terms in Consumer Contracts Regulations 1999 (UTCCRs) states that it is unfair for lenders to charge a disproportionately high fee if borrowers default on a loan, and Which? said its legal opinion was that some of the fees being charged could break the rules.
It has written to the lenders with the highest charges to challenge the level they are set at, which it said should be no higher than the administrative costs associated with defaulting.
Customers taking out a loan with the UK's best-known short-term lender Wonga will pay £30 if repayments are not made on time although the firm said the charge was to cover its additional costs.
Which? executive director, Richard Lloyd, said: "We believe payday lenders are exploiting borrowers with excessive fees which can push them even further into debt.
"If they cannot justify why these charges are so high and refuse to cut them, we would look to take further steps to protect vulnerable consumers. The regulator must also take action to ensure all fees are fair, proportionate and only reflect lenders' costs."
The Financial Conduct Authority, which has already introduced restrictions on payday lenders, takes over regulation of the sector in April and is looking at default fees.
Although payday loan companies argue that annual interest rates often in excess of 5,000% are not a fair reflection of the cost of using their services, advice charities point out that high charges for missed payments can lead borrowers into a spiral of debt.
Previous research by Which? found that more than half of payday loan users had been charged for missed or bounced credit repayments in a 12-month period, compared with 16% for all credit users.
In 2006, the Office of Fair Trading forced credit card companies to cap their default charges at £12, telling them they should be used only to cover costs such as postage, and not to create a profit.
Responding to the accusations, Wonga said it charged a one-off default fee that reflected the additional costs it incurred in collecting late repayments.
It said: "This charge has been independently assessed as reflecting these expenses. As with all our costs, we are completely transparent about our default fee and it's clear to customers when they apply for a loan, and at least three further times before their repayment date.
"On the rare occasions where people can't repay, we always encourage them to get in touch with us so we can do everything we can to agree an affordable repayment plan, including freezing interest and charges," Wonga added.
The OFT said it was also looking at the fees lenders charge as part of its ongoing investigation into the sector and agreed that fees should reflect actual and necessary costs.
On Friday, it announced it had opened an investigation into a seventh lender following its market study in 2013. It also confirmed it had been looking into the payday lender Toothfairy Finance, which went into administration in November and has now surrendered its credit licence.
David Fisher, senior director of consumer credit, said: "The surrender of the licences means that the businesses may no longer operate as debt collectors. The lender is in administration and we will be taking steps to ensure any outstanding debts are collected legally and fairly."
http://www.theguardian.com/money/201...d-payment-fees
Which? challenges payday lenders over high missed payment fees
Consumer group says borrowers are being exploited by excessive fees and regulator must ensure all charges are fair
Payday lenders are being challenged by the consumer group Which? to justify the fees they impose on borrowers when they miss payments.
The consumer group said 10 of the 17 biggest operators in the short-term loans market had default fees of £20 or more, while four charged £25 and above.
Consumer law laid out in the Unfair Terms in Consumer Contracts Regulations 1999 (UTCCRs) states that it is unfair for lenders to charge a disproportionately high fee if borrowers default on a loan, and Which? said its legal opinion was that some of the fees being charged could break the rules.
It has written to the lenders with the highest charges to challenge the level they are set at, which it said should be no higher than the administrative costs associated with defaulting.
Customers taking out a loan with the UK's best-known short-term lender Wonga will pay £30 if repayments are not made on time although the firm said the charge was to cover its additional costs.
Which? executive director, Richard Lloyd, said: "We believe payday lenders are exploiting borrowers with excessive fees which can push them even further into debt.
"If they cannot justify why these charges are so high and refuse to cut them, we would look to take further steps to protect vulnerable consumers. The regulator must also take action to ensure all fees are fair, proportionate and only reflect lenders' costs."
The Financial Conduct Authority, which has already introduced restrictions on payday lenders, takes over regulation of the sector in April and is looking at default fees.
Although payday loan companies argue that annual interest rates often in excess of 5,000% are not a fair reflection of the cost of using their services, advice charities point out that high charges for missed payments can lead borrowers into a spiral of debt.
Previous research by Which? found that more than half of payday loan users had been charged for missed or bounced credit repayments in a 12-month period, compared with 16% for all credit users.
In 2006, the Office of Fair Trading forced credit card companies to cap their default charges at £12, telling them they should be used only to cover costs such as postage, and not to create a profit.
Responding to the accusations, Wonga said it charged a one-off default fee that reflected the additional costs it incurred in collecting late repayments.
It said: "This charge has been independently assessed as reflecting these expenses. As with all our costs, we are completely transparent about our default fee and it's clear to customers when they apply for a loan, and at least three further times before their repayment date.
"On the rare occasions where people can't repay, we always encourage them to get in touch with us so we can do everything we can to agree an affordable repayment plan, including freezing interest and charges," Wonga added.
The OFT said it was also looking at the fees lenders charge as part of its ongoing investigation into the sector and agreed that fees should reflect actual and necessary costs.
On Friday, it announced it had opened an investigation into a seventh lender following its market study in 2013. It also confirmed it had been looking into the payday lender Toothfairy Finance, which went into administration in November and has now surrendered its credit licence.
David Fisher, senior director of consumer credit, said: "The surrender of the licences means that the businesses may no longer operate as debt collectors. The lender is in administration and we will be taking steps to ensure any outstanding debts are collected legally and fairly."
http://www.theguardian.com/money/201...d-payment-fees
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