This is a guest post by Councillor Andy Hull, Islington Council’s Executive Member for Finance, Performance and Community Safety and Alan Campbell, the founder of Debt Hacker.
For many of us, it only takes one unexpected expense or change in circumstances to throw our finances out of kilter. Since 2006, payday loan companies operating in the UK have been profiting from people’s urgent need to get relatively small amounts of cash, fast. High-cost, short-term credit generally comes with an annual percentage rate (APR) that exceeds 100%, with the worst examples charging an extortionate 1,000% or more.
The payday lending industry grew, in part, off the back of people experiencing serious debt because of payday loans: it was a vicious cycle. With extra, hidden charges and ballooning interest, it isn’t difficult to see how people who start off paying £100 or so a month in repayments end up forking out close enough to their whole monthly wage. Once the loan rolls over, or another advance is needed to cover further costs, many are left with next to nothing for rent or basic living costs.
Since the consumer credit sector became the responsibility of the Financial Conduct Authority in 2014, some steps have been taken to regulate it. In particular, the introduction of a price cap on the cost of credit, won by campaigners many of whom had themselves been badly burnt by such borrowing, put a big dent in the industry.
However, big problems remain concerning historic and current lending practices, especially when it comes to affordability assessments. The worst of the lenders are still charging over 1,000% in interest rates. Often loans are given to those on low incomes or in irregular work who have struggled to borrow from traditional banks.
Most people have been allowed to think that if you struggle and eventually pay off a high-cost loan, then that loan must have been affordable. In fact, if you struggle to repay a loan by missing bill payments or going without, then by definition that loan is unaffordable.
In these circumstances, you have the right to make a complaint about the lender and get back all of the interest and charges on that loan. Just as importantly, you can have the loan removed from your credit history. The Financial Ombudsman Service is predicting this year they will receive 50,000 such complaints. [edit: see Payday lenders tired of having to pay so many refunds – unsurprising! for the 2018-19 FOS Annual Review]
In 2016, the debt charity StepChange found that 1.4 million lower-income households in the UK turned to high-cost credit to meet a household need. For London residents, this is a particular issue: the capital has a high proportion of neighbourhoods among the nation’s most deprived.
The organisations which make up Islington’s advice alliance assist many people seeking their help after taking out payday loans, often when a stopgap has become a millstone. Activists in Islington are hoping to ensure unscrupulous lenders can no longer take advantage of some of the poorest and most vulnerable people in our society.
That’s why Islington Council and Debt Hacker have teamed up in a first-of-its-kind partnership to help people in the north London borough who have been sold unaffordable loans.
Debt Hacker’s free-to-use service allows borrowers to fight back against exploitative lending, reclaim unfair charges and interest, and fix their credit scores. We are working together on the ground in Islington to give those in financial straits a way out of money misery as part of a wider effort to help residents struggling with the rising cost of living. Debt Hacker will allow them to recover interest and charges on historic and current loans which they have struggled or are struggling to repay, see Debt Hacker’s Get Your Money Back for how they can help you put in a complaint.
Although profit-making claims management firms have already been encouraging payday borrowers to reclaim costs arising from mis-sold loans – claims which have helped to bring down payday giant Wonga – this collaboration between a local authority, a not-for-profit and local voluntary sector organisations is a first.
Payday loan shops are a common sight, not just in Islington but across the UK, targeting people with products they can’t afford and trapping the borrower in a seemingly endless cycle of debt, while lining their own pockets. We want people to know their rights and exercise them.
That’s why during the morning rush hour on ‘Blue Monday’, with people feeling strapped for cash after the festive period, fifteen of us from Islington’s debt coalition were out in Finsbury Park town centre, leafleting locals to promote Debt Hacker as well as plugging our local Citizens Advice Bureau and Credit Union.
The payday loan industry does real damage in our communities. It’s high time it was brought to book.
Andy Hull & Alan Campbell
Sara from Debt Camel adds:
I think this is a great initiative. Despite the publicity around Wonga’s collapse and 50,000 complaints going to the Financial Ombudsman, lots of people have never heard of payday loan refunds. A local authority working with local advice agencies will be able to reach some of them and Debt Hacker’s free service is a welcome alternative to commercial claims management companies.