Complaints about high-cost loans have leapt by up to 250% in a year, amid growing concern about the types of product that have sprung up following Wonga’s collapse.
The new data also indicates that the UK’s Financial Ombudsman Service (FOS), the official complaints handling body, is taking a tougher stance on these costly loans.
The decline of the payday loans industry – with the collapse in August 2018 of Wonga, the best-known player, followed just over a year later by the demise of QuickQuid – has led to some people turning to other forms of pricey credit.
So-called instalment loans are offered by firms such as Satsuma Loans – part of the Provident Financial group – and Peachy. They typically involve weekly or monthly repayments being made, and last for between three and 12 months, but can be expensive: Peachy’s website quotes a representative interest rate of 855% APR. Some people have taken them out as a way of refinancing unaffordable payday loans.
Complaints about high-cost loans often relate to affordability – for example, a borrower claiming that the checks a firm should have carried out were not done properly, leaving them with extra interest and charges that they cannot pay. Others involve claims that a firm acted unreasonably or unfairly when someone’s financial situation changed.
The latest FOS data covering the period 1 October to 31 December 2019 shows that the ombudsman dealt with 4,535 new cases about instalment loans during the three months. That compares with 1,295 new cases during the same quarter in 2018 – a 250% increase.
The ombudsman is also upholding more cases in favour of the consumer: 75% during the final three months of 2019 compared with 67% a year earlier.
This surge in consumer complaints will also be proving potentially costly for the lenders, as the ombudsman service charges businesses a case fee of £550 for each complaint it deals with, whatever the outcome. However, it does not charge a company for the first 25 cases it deals with during the year.
There has also been a big increase in complaints about guarantor loans – where friends and family guarantee repayments on loans to people who may otherwise struggle to borrow. The ombudsman dealt with 303 new cases in the final three months of 2019, which was up 71% on the 177 new cases during the same period in 2018. Meanwhile, the uphold rate has shot up from 20% to 90%.
Subprime lender Amigo, the largest provider of guarantor loans, announced on 27 January that it had put itself up for sale. Amigo offers loans of between £1,000 and £10,000 at a representative interest rate of 49.9% APR.
Amigo mentioned the FOS in its announcement, saying that “we are concerned there may be increased pressure on our business”.
A surge in costly complaints was one of the key factors that led to Wonga’s demise.
