Dear CEO… how to improve payday loan complaints handling

The FCA wrote a “Dear CEO” letter to all consumer credit firms on September 13th 2017. This said the FCA has reviewed complaints handling at a range of firms and found material non-compliance and other concerning practices.

The letter details these problems and ends by saying that the FCA expects firms to:

 review how your firm identifies, records, and deals with complaints as well as how this is communicated to customers.

Although the letter was sent to all consumer credit firms, payday lenders have by far the worst record for complaint handling:

• 68% of complaints to payday lenders are being upheld by the Ombudsman;
• for the biggest lenders – Wonga, Quick Quid and the Payday UK/Payday Express/Money Shop group – the Ombudsman is upholding an astonishing 77% or 76% of complaints.

This article suggests ten specific improvements payday lenders should adopt to approve their dismal record in this area. I’ve seen a lot payday lender replies to readers requests for refunds and many of them are dire. The quotes from lender responses and from readers are all recent; I’m not naming the lenders as many are just typical examples and apply to several lenders.

1. Treat customers with respect

As the FCA says firms’ attitudes to complaints are a strong indicator of their culture and whether they have customers at the heart of their business. 

But some lenders’ attitudes towards customers making a complaint are far from supportive. For example, one lender normally writes We treated you as a rational individual able to make a credible decision as to whether to borrow or not.  Here is a typical customer reaction to that: Awful company, found the email insulating, insinuating we aren’t rational adults because we have money problems.

Don’t complain they are using a template letter – this is irrelevant to the question of whether they have a good complaint. Even a financially aware customer may find it convenient to use a template, and for other customers having a template may be the only thing that gives them the courage to make this sort of complaint. Also, most firms are clearly using template letters to reply!

These may seem like small points but they matter. Starting off by sneering at the customer and implying this isn’t a “proper” complaint wastes space and sets the wrong tone. Many responses are far too long – one I saw was over 3,000 words. Removing irrelevant stuff will encourage customers to understand a response.

2. Supply a list of loans to your customers

Many customers ask for a list of their loans because they don’t have all the details. Some firms supply this quickly, others are slow, but a few consistently refuse to give these details, saying they aren’t obliged to under the Consumer Credit Act. That is true but irrelevant – the customers are not making a request for their CCA agreements, they just want a list of their loans and what they have repaid.

To fairly handle a complaint, a firm needs to listen to the customer explain what the complaint is about. To deliberately withhold information from the customer that will help the customer to do this is unfair and unreasonable.

3. Don’t ask for unnecessary detail

A few lenders are routinely asking customers to supply bank statements and payslips. I don’t know why this is being done, except to make the complaint process look daunting to the customer…

The firms concerned are all already slow in replying to complaints towards the end of the 8 weeks. If many customers send in several years of bank statements I can’t believe they would be looked at in any great detail, or even at all. And I am unclear why payslips are ever required if bank statements are provided.

4. Keep your English simple

Responses should be written in English which is clear to your customers, not to lawyers. Fairer Finance points out that 1 in 6 adults has a reading age of 11 or less. Some of the template responses from lenders contain bizarre phrases, incorrect or missing words, and convoluted English, e.g:

• in lieu of the above (the writer means in light of the above)
• you never had more than four consecutive loans with less than 15 days between loans.
• We comprehend that you wish xxxxxx to investigate your concern regarding the affordability checks conducted while approving your loans.
• With the above being said, we would like to inform you that xxxxxxx never retreat in extending their support
• Your credit model score is substantially higher the minimum approval score which shows that our affordability assessments properly ran per our internal policy. 

5. Give a fair summary of the case

Too many firms treat this an adversarial system pointing out all the defects in the customer’s complaint and not acknowledging the genuine underlying problems.  For example, one lender uses a template letter which systematically frames the customer’s complaint in negative terms. The following comments were made to a customer who had taken 19 loans:

• There were 348 days between your 1st and 2nd loans, further demonstrating that you were not simply taking out one loan to repay the next one. No mention of the fact that the other 18 loans were taken out in short succession.
• Your repayment history shows that you made repayments before the contractual due date. In 1 instances, you made early repayments which is evidence of a strong financial history. So presumably in 18 instances, the loan had not been repaid early.

One reader commented:  they’re saying they’ve checked my previous lending history with them but forget to mention I was several months behind with my payments on my first loan with them.

This is not a reasonable way to determine whether to uphold a complaint. A firm is not trying to score points in a high school debate, it is supposed to reach a fair decision so there will be no need for the customer to take the case to the Ombudsman. To produce this fair summary of the borrowing, it is necessary to actually read the customer’s complaint and consider the points being made.

6. Explain how you have reached your offer

One reader commented:

xxxx have now got back to me in a strange very lengthy email denying any wrongdoing and explaining everything they did was right but then adding a line on saying they do think that they could have done more and are upholding my complaint! However the offer is based on a seemingly random selection of loans from the lending period.

If a response only offers to refund certain loans, it should explain why those loans have been selected.

The aim of making an offer should not be to try to get away with the least amount the customer may be gullible or desperate enough to settle for.

One firm frequently makes low goodwill offers with customers typically getting 10 or 20 times as much from the Ombudsman.  One reader said:

xxxx offered me £150 as a goodwill gesture. I rejected this. The adjudicator found in my favour. xxxx rejected the adjudicator’s view however they kept increasing the offers from £2000, to £3800 to £5900. I rejected them all and waited for an Ombudsman to review. The Ombudsman agreed with the adjudicator and I received just over £8500 back.

7. Use the same basis for reaching a decision that the Ombudsman does

All the major and mid-sized lenders have had many complaints determined by the Ombudsman so they should be well aware of what a “typical” redress to someone who has borrowed consistently for a long period is.

That is the basis that should be used for determining customers’ complaints – not some odd metrics that the firm itself has invented:

• One firm has been offering partial refunds on a few loans where it broke its internal rule on the maximum number of rollovers – this is not a measure that the Ombudsman uses and it ignores the fact that for prolonged borrowing the Ombudsman will usually refund all loans after a date.
• Another firm routinely rejects refunds on loans taken after 2015 when it changed its lending policy. But many cases involving loans after this date and this lender are being won.
• Several firms appear to use a percentage of someone’s income to judge what is affordable – they should know by now this is not how the Ombudsman measures affordability in cases where there is prolonged borrowing.
• Some firms reject complaints where there is evidence of gambling even though they know these cases are usually upheld by the Ombudsman.

8. Don’t mislead the customer

There are some common situations where some lender responses seem designed to mislead the customer into thinking they should accept a low offer or drop their complaint.

• Where a customer still owes a balance, if this last loan is determined to be unaffordable, the first step should be to remove any interest added, reducing an outstanding amount from say £700 to £400.  It is common for some firms not to do this, so a customer is left with the impression that the overall refund being offered on the earlier loans is larger than it actually is.
• If a debt with a balance has been sold, the customer should not be told to contact the debt collector about the complaint. The affordability complaint is against the lender who made the alleged irresponsible lending.
• It is unhelpful and can be misleading to quote firms internal credit scoring numbers and assert these were fine. The customer has no way of telling if the numbers are correct or not – and in the case of one lender who typically quotes what it refers to as “an Experian score”, they are often bizarrely high.
• Several firms tell customers they are not allowed to change/delete adverse data from credit records when they are offering a refund. Removal of adverse data is a standard part of an Ombudsman’s award and there is no reason why a firm should not do this itself if it has decided that the loan should not have been given.

9. Give better information about the complaints process

DISP 1.6.1 says a firm must send the customer a prompt written acknowledgement.  But what is prompt? Some firms never send an acknowledgement at all, just a reply in the 7th or 8th week.

Few lenders give a good indication of the details of the complaints procedure on their websites. If firms provided more indications about when a customer was likely to get a response and the timescales for paying any redress, their customer services would have fewer telephone calls to deal with.

10. And, most importantly, root cause analysis

The above nine suggestions would considerably improve the handling of payday loan affordability complaints. But the FCA requires firms to go much further, pointing out that DISP 1.3.3 says firms:

must put in place appropriate management controls and take reasonable steps to ensure that in handling complaints it identifies and remedies any recurring or systemic problems.

So payday lenders need to consider their current application and approval processes for new loans. Although the problems in 2017 are significantly less than in 2012-4, there is still an unacceptably high number of unaffordable payday or instalment loans being made. Learning lessons from complaints should let firms improve their lending decisions in future.

Historic problems should be addressed systematically. A simple analysis of a firm’s database is likely to throw up a list of customers who would be very likely to have an affordability complaint upheld. I have not seen any firm taking proactive action to reach these customers.

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