What is the Citizens Advice Bureau and what makes it a credible source?
- There are 3500 locations across England and Wales.
- The CAB advice website Adviceguide serviced 14 million people last year.
- In the last four years they have seen a ten-fold increase in the proportion of clients receiving casework help with multiple debts which included a payday loan debt.
- In 2012 Citizens Advice launched a payday loan tracker survey and it was determined that lenders were breaking 12 out of 14 of their promises.
From their report it is clear that they have long been a champion for consumers and they aim to provide advice to people who are facing financial problems. They want to assist in cleaning up the industry and that their recommendations are based on case studies.
What motivated the Citizens Advice Bureau to do this report?
The regulating authority of the payday loan trade moved from the OFT to the Financial Conduct Authority (FCA) on 1 April 2013. There was a consultation period preluding this shift, during which the FCA consulted with the BIS and Citizens Advise Bureau. The results of the inquiry by the Business, Innovation and Skills committee into payday loan companies revolves around affordability checks and were echoed by the CAB.
CAB’s report highlights the role lenders are playing and listing what the regulators are or should be doing and identifies another major role player during this transitional period as a credit reference agency announcing a real-time data sharing product for payday loans by April 2014. This is to make it easier for payday loan companies to meet the proposed FCA requirements on affordability checks and the rules on irresponsible lending.
Core findings and recommendations from the report.
Here are the 5 key areas of concern for the Citizens Advice Bureau and some interesting statistics derived from their research;
“Inadequate affordability checks” – research showed that 61% of loans did not appear to have involved any affordability checks done by the payday loan companies, and this was the reason why three quarter of lenders could not pay their payday loans in time.
“Rollovers” – rollovers and extensions can allow some flexibility, but rolling over the loan means incurring extra charges and interest since the same rate applies but over a longer period.
The report says that the OFT’s payday lending review found that 50 per cent of payday loans companies’ revenues came from customers who rolled over a loan. CAB suggested one, their view being “the best way to address a problem with repayment, is with an agreement of an affordable repayment plan, not extending the loan term.”
“Continuous Payment Authority” - Inappropriate use of Continuous Payment Authority (CPA) has been a hallmark of the misconduct Citizen Advice Bureau see within the payday loans market. A CPA enables a firm to install themselves as a priority creditor.
The FCA proposed introducing a limit of two unsuccessful attempts on the use of CPA to pay off a loan, this will provide sufficient flexibility for payday loan companies to cover a customer who may have received wages late without giving firms free rein to make multiple attempts within very short periods of time from clients’ bank accounts.”
“Advertising” - The proliferation of payday loan advertising, which often appears in inappropriate locations, targets vulnerable people and can be misleading, this is also of concern to Citizens Advice. They are campaigning to see immediate action taken to ban the appearance of payday loan advertising during children’s’ programmes. More on the motivation behind this concern on page 5 of the report on Ofcom research that showed in 2012 there were 397,000 payday loan advertisement spots shown on TV and the average child will see 70 payday loan adverts each year.
The FCA has proposed that in future all advertising includes information about the consequences of not being able to pay back the loan and signposting to advice.
“Funding of debt advice” - debt issue advise is no longer considered legal aid, and funding to Citizens Advice Bureaux has been cut by £19 million. The grant allocated by the Money Advice Service for providing face-to-face debt advice is now the predominant funding source for the Citizens Advice service’s debt advice.
Although the above mentioned are the key areas of concern, Citizens Advice had some suggestions for the FCA on Credit brokers and Logbook loans, more on this on page 7 of the full report.
An interesting survey carried out by the Citizens Advice Bureau on 4,000 customers who had taken out a loan is also included in the report. It is worth mentioning that in the balance of impartiality the results the Citizens Advice Bureau will have obtained are inherently going to be biased towards people who are in financial difficulty by the very nature of the sample base the Citizens Advice Bureau would have.
Core statistics from the report.
Citizens Advise Bureau’s survey of over 4000 payday loan customers found that:
- 77 % of respondents said that they had difficulty repaying the loan,
- 18 % of the 77 % said the risks of extending their loan was explained to them
- 6 % said their payday loan companies did not check on their ability to repay an extension
- 53 % said it was difficult communicating with the payday loan companies.
- 17 % said they were dealt with sympathetically
- 16% said their lender offered to freeze charges and interest if a reasonable repayment plan was agreed.
- 9 % were advised to seek debt advice.
Overall this study does indeed highlight some import areas of concern. The big issue that we have with this report is that we don’t feel the sample size reflects the true customer.