Debt Hacker is out to tackle unaffordable payday loans
Debt Hacker founder Alan Campbell was interviewed by Winifred Robinson on the You and Yours programme on BBC Radio 4, broadcast on 25 October 2018.
Alan also had this to say about the inaccuracies around Debt Hacker’s aims that were put across in the interview:
“In the interview, it was suggested that we are trying to use the Financial Ombudsman Service (FOS) to send payday lenders “to the wall”. We would like to clarify that that is not the case. Our stated campaign aim is to inform people of their rights and help them make complaints about unaffordable lending practices, giving them the tools to do so. There is no question of “using” the FOS to put lenders out of business. It is payday companies’ own historic unaffordable lending that threatens that, as in the case of Wonga.
We respect the hard work of the FOS. Only if a customer’s complaint has been rejected by a payday lender are they given the option to escalate it to the FOS - a consumer right given by Parliament. Each escalated complaint would result in a cost to the lender – but they will only find themselves at risk if they have failed to properly prepare for these complaints and if they continue to lend unaffordably.”
Below is a transcript of the interview, so you can read how Debt Hacker is helping people get compensation for unaffordable loans by informing them of their rights.
You can also watch the video for the full interview:
How Debt Hacker is tackling unaffordable payday loans
Winifred Robinson (WR): In August, payday lender Wonga collapsed. Part of the problem was that the financial authorities had caught up with payday lenders in general and with Wonga in particular. Wonga was forced to write off a lot of its’ customers debts and to compensate others for mis-selling them loans they couldn't afford and for unfair and misleading debt collection methods. Here are some of our listeners who told us about all that.
Listener 1: The letters were basically saying that if I didn't pay they were sending people to my house and they were threatening bailiffs and removal of goods and things like that. By that stage, I owed Wonga about two or three hundred but by the end of the correspondence in letters it was around about seven or eight.
WR: Because they charge you every time they send you a letter.
Listener 1: Yes, that’s it. They were basically saying that they were a solicitor and they're now taking over the debt from Wonga.
WR: But we now know it was one girl all along.
Listener 2: I needed to buy a new car tyre in 2009 and I didn't want to ask family for the money. I took out a payday loan to pay off the car tyre. The following month with the interest I had to pay back more so I took out another loan. I have borrowed £9,260 since February 2010. There were charges of £2,071 - I have paid back £11,301.
WR: In the end it was the sheer weight of compensation claims that brought Wonga down. Because when customers claim compensation from any payday lender, as well as paying the compensation the lender has to pay the admin costs. Now a new not-for-profit website is aiming to pile pressure on other payday companies by encouraging more and more customers to claim. Alan Campbell founded that website, it's called Debt Hacker. Greg Stevens represents the payday lenders, he's the chief executive of the Consumer Credit Trade Association.
WR: Alan Campbell, the people who've had payday loans, what might they be able to get compensation for?
Alan Campbell (AC): I think the first thing is we’ve got to understand is people have been allowed to think that if you struggle and you manage to repay a loan, then it was affordable. In fact if you struggled to repay a loan then it was by definition unaffordable.
The lady that spoke there a moment ago said she borrowed £9,260 and she paid charges of £2,701. Well, if she was to make an affordability complaint on the lender she would be entitled to get back £2,701 and the lender can't discriminate against her, can’t hold her on a credit file and if the lender disagrees she can make a complaint to the Financial Ombudsman Service.
WR: Greg Stevens from the Consumer Credit Trade Association, the payday lenders, if they are taken to the Financial Ombudsman Service, have to pay £550 a case win or lose. Might the whole sector would be brought down by the sheer number of claims?
Greg Stevens (GS): First of all I represent other companies other than payday lenders across the whole spectrum. I'd like to applaud Alan on his idea, however we think it might be misplaced. If you look at the current and past regulator and also two competition commissions which spanned several years and on to the root and branch investigation of two different credit sectors including payday lenders, then many of the instances that's being repeated now are actually being dealt with and we're looking at things in hindsight when what we should be looking at is where do the companies go, where does the market go? Alan's idea in terms of a conversation to the FT on the 2nd of September, I quote, is: ‘If just 100,000 people complained to Financial Ombudsman Service it would cost the payday lenders £55m alone win or lose.’ It seems to suggest that you would like the sector to close down by default.
WR: Alan Campbell from Debt Hacker, we've had a statement from another payday lending trade body, the Consumer Finance Association, and they said if Debt Hacker is assisting people to make valid claims then no one will have a problem with that.
If it's more about destroying the sector by flooding the Financial Ombudsman Service with questionable claims then we're not sure how that helps borrowers or helps valid complainants and we might ask the Financial Ombudsman Service to use its powers to step in and address a scheme if it was all about that.
Now Wonga has gone, the people who had valid complaints against Wonga and are owed compensation - they won't get that because there's no money left to give them.
So the people that have come to you Alan with genuine claims, they will potentially lose the chance to get some compensation won’t they, if everyone piles in?
AC: No. The Wonga business model, as demonstrated by the lady that spoke, was predicated on unaffordable lending. If I was an existing Wonga borrower just now, I would make a complaint and put the administrator to task to see whether that loan was affordable.
WR: But if there's no money there to pay you won't get any compensation.
AC: What you would get would be relief on the interest which you've yet to pay and the loan would only be payable when it becomes affordable to be paid.
WR: Answer the other bit my question then if everyone piles in and a lot of these companies are brought down a lot of people who have genuine claims for compensation won't get them will they? There will be no money left to share
AC: Well that's not correct is it, because the Financial Conduct Authority who have tacitly acknowledged the scale of the problem only last week wrote to lenders suggesting that they should contact customers who have not complained and make redress for unaffordable loans.
WR: Greg Stevens, does anyone know the likely bill if all the people with a genuine claim apply for compensation, what will it cost the sector?
GS: I don't think anybody knows what that cost is but I think all this really comes down to is a question of access to credit going forward. There is a real danger that if the action suggested by Debt Hacker and other such firms takes effect we will be looking at a sector which is not being served. Even the FCA have said repeatedly that the sector needs to have access to credit responsibly and that's what the industry has been doing in line with regulation over the last five years.