Making payday lenders bear the cost of unaffordable lending

Debt Hacker founder Alan Campbell was interviewed on BBC Radio 4’s PM programme on 28 August 2018.

Below is a transcript of the interview, so you can read how Debt Hacker is helping people win compensation from high cost lenders using or free payday loans complaints tool.

Listen the whole interview on the video below.

Debt Hacker on BBC Radio 4 PM

Simon Jack (SJ): Few I suspect will mourn the demise of payday lenders.

Hundreds have already shut off shop since previously eye watering interest rates on short-term loans were capped at slightly less eye watering levels and now the future of one of the biggest and most well known, Wonga, hangs in the balance.

The company says a surge in compensation claims for those mistreated before the caps came in threatened to bankrupt the company.

One of those is Katie who spoke to the World At One today.

I was a student struggling to make ends meet as many do. Gad a minimum maintenance loan and a very small zero hours job, which couldn't always guarantee me money in. Desperate and looking for a little bit of extra support I started taking out a few payday loans with a few different companies, including Wonga.

A quick check of my credit file would have showed that I was borrowing from several payday lenders, that my income wasn't high enough to make those ends meet.

SJ: Well she's now seeking compensation from longer on the grounds of inappropriate lending, but the short lived success they had shows there is demand for this kind of short-term loans and when they're gone where will people go.

First of all Alan Campbell, a financial services specialist, who wants to see the back of them and you've got a plan to do that. What is it and why are you doing it?

Alan Campbell (AC): The plan is essentially to hold the lender to account. At the moment the lender has a responsibility not to pervade bars with unaffordable lending and what we want to do is to hold them to account, just like that young lady said.

Where a lender lends unaffordable - and affordability is not by definition that the loan is repaid - affordability is doesn't meet your financial situation worse. So where a lender lens in a way that makes your financial situation worse, so you miss a bill payment you go without food to repay, that's an unaffordable loan.

In those circumstances, your entire entitled to reclaim the entire interest and the entire level of charges.

What we're trying to do is to make people aware of the lenders responsibility.

For too long people have been seen to borrowers your feckless, it's your it's your problem that you got yourself in this situation.

But the lenders of some down that road and then left them there in an unsolvable a financial position.

SJ: And your campaign involved doing what? You're not a claims management company yourself, you've got no economic interest in this. What are you doing it for what how are you gonna go about it?

AC: We’ve set up and not-for-profit organization and that not-for-profit organization is possibly going to educate the public as to what affordability means. So if that loan was bad for you, if you struggle to pay off if you had multiple loans, it was probably unaffordable.

This isn't respect of loans which have already paid back.

We'll be seeing to the borrower you have no downside, because the lender can't even put the fact that you claim on your credit file.

If the lender doesn't meet your claim, then you've got the right to take that claim to the Financial Ombudsman service and that will cost the lender £550 each time you do that.

So in circumstances where lenders are now being faced by claims they have five hundred and fifty reasons to meet a settlement to that borrower.

SJ: Listening to that is Peter Totten, head of policy at the debt charity, Step Change. Now as I say few people will mourn the demise of payday lenders. First of all would you say good riddance. If Alan Campbell is successful and he makes them extinct, i just wonder what people will do when they need short term cash?

Peter Totten (PT): On the first part of that I think that let's remember back to what was happening with payday loans. What we were seeing was an explosion in people coming to see us who had payday loan debts alongside other debts quite often.

But also the nature of the payday loan debts and the nature of those payday loans was this was causing people extreme hardship, often alongside some bad practices, very bad collection practices, people being charged more and more money, being siphoned out of their account leaving them with nothing.

So the way the market was working was causing a lot of hardship a lot of detriment and it's absolutely essential that the FCA, the financial conduct authority, go on top of that and make sure these kind of practices and loans that weren't really suitable for often financially vulnerable people are still there.

SJ: Now are you happy that they did that and that they've done their job?

We campaigned hard on on to raise the problems we were seeing with payday lines and I say it was absolutely essential the FCA did.

Now that to say the job is not done they were still issues in the credit market and they were still issues with high-cost credit the we're seeing now, but but the point is that there is a process whereby the regulator is getting on top of this and trying to make these markets safer.

On the other side, there are about 1.4 million people having to use high-cost credit just to make ends meet.

SJ: So if Alan Campbell is successful and he gets rid of all that payday lenders because of their previous misdemeanours where we'll there's 1.4 million people go?

PT: There's a couple of different bits to that.

Firstly is the understanding that the people are using high-cost credit is is often not going to be a good thing, because repaying that credit it's going to make financial difficulty even worse. So the strategies people are using to get by this month may cause further problems next month.

Just the fact that people are using it and there's a demand for it, doesn't mean that by itself is a good thing.

Let's say I've got a legitimate need for it, am I going to family and friends I going to a credit union what are my options?

People are doing all of those things so actually the number of people we're seeing borrowing for emergencies is much bigger than those using high-cost credit so people are doing things like families and friends other sorts of credit credit unions that's happening.

We need to grow things like credit unions, third sector lenders, give people a safer alternative.

If you break down what people are using high-cost credit for, one of the things that we saw is that people using high-cost credit, they were in serious financial difficulty they couldn't really afford to repay their loans and they were using high-cost credit to try keep paying things and stay on the road.

If creditors are giving better forbearance, directing people to advise, where people are using high-cost credit for things like trying to pay a bill, we might expect that credit of the bill, the fuel company to offer people payment facilities.

SJ: It sounds to me like you haven't got an easy answer to where people need to go if they actually need that cash. You're saying we need to grow credit unions, but there's no easy alternative at the moment. It's all very well so telling the electricity company to back off for a bit, but that sometimes that's not possible.

PT: There isn't an easy answer and that's part really that there isn't an easy answer, but high-cost credit isn't a good answer.

There are some people that can use alternatives, there are some people who can use high-cost credit safely in a well regulated market.

SJ: Let me put that to Alan Campbell. There are some people who can use high-cost credit safely. What's gonna happen once you've seen off the top of the payday lenders?

AC: Basically what we're doing is we're making the lender bear of the cost of lending unaffordable and the easy answer is that when the bear that cost, they will no longer land on affordably

SJ: So the market forces will work and so if I'm currently making X return they'll make a lower return?

AC: The most profitable company in the world today is our four it makes a 27% return on capital employed covenant financial make a 23% return on capital employed they have great scope to reduce their price is to give people affordable finance.