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Contractors warned to avoid payday loans as complaints against firms on the increase

July 10th, 2014

The Financial Ombudsman Service have today confirmed that complaints in relation to pay day loan companies have doubled over the past 12 months, with the expectation being that more will follow once firms become clearer on their lending principals. FOS believe that many borrowers are tempted to utilise the services of the short term loan option, but are not sufficiently confident to bring a grievance to the body in respect of poor practices on the part of the lender.

While the increase in the number of complaints is significant, FOS feel that the latest figure for the year of 794 complaints recorded is on the low side, with the expectation being that several recent high profile fines regarding Wonga loans could bring more cases to the fore. During this period the body received 5,395 inquiries, but this figure raises questions when the amount of short term loans taken in the UK over the past year amount to approximately 8 million.

FOS believe that the reason there have been very little complaints received so far on the matter relates to many potential complainants not being aware of their rights as consumers. Caroline Wayman, a principal ombudsman for FOS, said: ‘We often hear from people who took out a payday loan as a desperate last resort and blame themselves when the debt starts to spiral out of control. It’s important that people don’t feel trapped with nowhere to turn because of the stigma associated with short-term lending.’

The figures for upheld complaints make for startling reading, as the details presented by FOS show that two thirds of the received requests for inquiries resulted in the complainant being compensated, and in the case of Wonga, the highest profile payday lender currently active, 62% of complaints levelled at the firm were found in favour of the aggrieved party. At present, high street building society Nationwide has an upheld rate of 10% for all complaints made, a far cry from the level seen across the payday industry, which sits at 63% as a whole.

The majority of the received grievances raised related to perceived poor administration of loans, aggressive debt recovery practices and in many cases, the illegitimacy of the loan itself, with fraud claims pursued in several cases where identification has not been correctly sought. On the 1st July, the Financial Conduct Authority issued stricter rules for lenders to follow, enforcing a maximum of two times that a firm can roll a loan onto a longer term, and to charge additional fees for the agreement. The restrictions also prevent pay day lenders from attempting to take owed payments more than twice from a customer’s bank account.

For contractors looking for mortgage funding, warnings have again been raised that having a history of utilising pay day loans will dramatically decrease the chances of mortgage funding. Natalie Larsen, a Senior Mortgage Consultant for Contractor Mortgages Made Easy, said: ‘Even before the FCA released the Mortgage Market Review guidelines in April, lenders have been warning that the usage of pay day lending will in all probability result in an application being rejected. As lenders are now required to run a far tighter rule over the potential for an applicant to cover their outgoings and the future mortgage payments, any sight of short term lending options poses the question, is this a feasible proposition?’

Larsen continued: ‘While living within your means is always the most advisable course of action, contractors should consider alternative sources to maintain debt, to avoid any disappointment when applying for a mortgage.’

Article By: Simon Butler, Senior Mortgage Consultant at Contractor Mortgages Made Easy

Media Contact: Raman Kaur, Public Relations Manager

Tel: 01489 555 080

Email: media@contractormortgagesuk.com

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