Final Notice for the unaffordable lending industry
Wonga has collapsed. It reaped what it had sown following years of rule breaking. Others will follow.
Lenders are under explicit regulatory obligations to only provide affordable loans. Payday lenders, and other unaffordable lenders, have been ignoring those rules for years and have been piling unaffordable debts on the people who could least afford it.
Wonga, and others, are learning the hard way that borrowers have had enough and are learning about how they have been cheated. Their collapse has exposed a systemic flaw in the unaffordable lending business model; in all its forms.
If customers now realise they were given a loan they could not afford then they have a strong case to get money back, including interest, charges and even further compensation.
As a consequence of other historic mis-selling scandals people are more aware of their rights to bring claims.
They have the right to make a complaint to the Financial Ombudsman Service; and a complaint, win or lose, costs the lender £550 minimum.
As this dawns on the wider public, the scale of claims will put the industry under enormous pressure:
complaint numbers for QuickQuid have tripled since the last half of 2017
in 2018, complaints have doubled for lenders such as Lending Stream, Sunny and Payday UK
The pay day and high-cost credit industries are just the very tip of the iceberg, and they are about to be put on final notice.
This will eventually reach high street lenders.
Barclays, for example, received 4,633 complaints in the first 6 months of 2018 alone, many of which will include unaffordable lending.
The scale of latent unaffordable claims is enormous.
“Unaffordable lending” and “over-indebtedness” are the two sides of the same coin, as the unaffordable lending by regulated lenders has led to the over-indebtedness of the borrowers.
This manifesto sets out why their historic and current unaffordable loans are going to come back to haunt them, and how people power will ensure they will.
There are 8.3 million people in the UK who are dangerously over indebted, for many of them their debts have been perpetuated by unaffordable lending on a massive scale.
Our objective is simple, for the lending industry to change its ways.
If the lending industry only provides affordable loans, as it is obliged to, then those who have been on the sharp end of irresponsible and unaffordable lending will be liberated from one of the key causes of the debt cycle that so many endure.
We will do this by putting the power in consumers hands.
If consumers understand what the affordability obligations on lenders are, they will know when they have been exploited. Armed with this knowledge, they will be able to seek appropriate recourse and get back all their interest and charges.
Not only that, the loan would be removed from their credit file giving many borrowers a clean slate.
Understanding that affordability rules have been broken (going back years) will also aid the debt advice industry in helping over indebted people do away with the loans they should never have been sold. In doing so they will leave the unaffordable lenders no choice.
Change their ways or go the way of Wonga. Bust.
Shining a light on a broken system
UK families owe a record £213.5 billion on credit cards, car finance and short-term loans. This is because the lending system is systemically flawed, designed to create an inescapable cycle of spiralling debt by advancing unaffordable loans.
This trap captures huge swathes of society, with NHS workers, teachers, and gig economy workers being the most prolific users of unaffordable payday credit.
At the heart of this problem is a simple principle that is being ignored wholesale by the industry, and unenforced by regulators.
Lenders are only supposed to advance loans that are affordable. But they do not properly check whether it is affordable because, fundamentally, they just want to lend people money as that is the nature of their business, with little regard for the personal consequences for borrowers.
As someone with an extensive background in financial services, our founder Alan Campbell understand the tricks of the trade and can see how the catalogue of failings have led to the current state of household finances.
However, it can be fixed and the power is in peoples’ hands. Our aim is simply to explain how they have been mistreated and then give them the tools to fight back.
Force for change
The payday industry is at the forefront of irresponsible lending and will be the first domino to fall. Indeed, this is already starting to happen.
Wonga has fallen, and others are trying to douse the flames.
However, the flagrant disregarding of Financial Conduct Authority (FCA) rules on affordability is by no means unique to payday.
Doorstep, catalogue, credit cards, car finance, and more, have a lot to answer for.
The FCA obliges lenders to have a simple duty of care for their customers; and that is to check, and evidence that they checked, that the customer can afford the loan.
Credit is not a bad thing in and of itself. Credit should improve lives by allowing people to deal with life shocks or smooth the ebbs and flows of day-to-day finances.
When servicing debt makes someone’s life worse it is by definition unaffordable.
The country’s current personal debt crisis demonstrates that the billions in debt that people collectively hold was not affordable in the first place.
What is needed is a cultural change in lending behaviour and enforcement and penalties from the FCA on the already existing rules. If unaffordable lenders are suitably brought to book for unaffordable loans, then they will have no choice but to change their ways or pack their bags.
Change is coming whether the industry likes it or not as the borrowers will force that change.
Like the toxic mortgages that came to light in the 2008, Wonga is the ‘Lehman Brothers’ moment for the unaffordable lending industry. Once people understand the scale of unaffordable lending, the claims will work their way up the financial food chain.
More dominos will fall.
However, there is danger here.
The claims management industry, with an eye on the PPI deadline, sees these unaffordable loans as the next game in town – just look at Wonga. They are already starting to capitalise on what they see as a cash cow.
Not only does this run the risk of vulnerable borrowers being exploited further, it also represents a clear and present danger to the ethical lending industry.
There are many ethical lenders and credit unions who do their very best to help support people. However, the very nature of their products means they are often the last resort for someone in financial distress.
Claims companies have many ethical lenders in their indiscriminate sights too, and regulators must act fast to ensure that the demise of ethical lenders does not become the unintended consequence of a consumer fightback.
Introducing Debt Hacker
Debt Hacker is a campaign designed to put power back in the hands of borrowers and help them fight back against exploitative high cost lending.
By empowering consumers with honest information and free easy-to-use payday lender complaint tools, Debt Hacker will enable thousands to claim back the costs of unaffordable loans that should never have been offered to them, without targeting ethical lenders.
Debt Hacker will harness the power of digital and offer free support and tools to help borrowers bring an avalanche of claims and complaints.
This will force the unaffordable lending industry to reform. Borrowers are fed up of being blamed for their over-indebtedness.
Debt Hacker will let them know that they have a right to be protected from lenders who take advantage of them and the time has come for those rights to be exercised.
These claims through the Ombudsman are no shot in the dark. They work.
Their own statistics confirm the ratio of upheld complaints:
Lending Stream 62%