Credit where credit's due
The controversy surrounding payday loans looks set to continue as the FOS has issued a warning to consumers about payday loan middlemen.
As the FCA's massive consumer credit regime takes shape and thousands of newly regulated firms deal with the additional bureaucracy and regulatory burden, FOS has taken a bold step in highlighting a significant problem at which the regulation ought to be focussed.
The recent FOS report, "payday lending: pieces of the picture", found that a number of credit brokers, including firms with interim permission from the FCA (which took over regulation of consumer credit in April), have treated consumers unfairly. It appears brokers have in some instances been draining bank accounts by taking "membership fees" from consumers who mistakenly believe the fees are used to arrange a loan. In some of the more extreme examples seen by FOS, the bank account of the relevant consumer was debited on a number of occasions without warning, because the bank account details were passed on to other third party credit broking websites.
The actions of payday loan intermediaries have led to more than 10,000 consumers contacting the FOS since the start of the year to complain. This figure is already double the number of similar complaints received in 2013.
Charging a broking fee is often provided for in the terms and conditions set out on the brokers' website. However, the FOS has found that many consumers who used these websites thought that they were applying for a loan directly and didn’t realise that they were paying a middleman. In two thirds of the complaints investigated, the FOS agreed that the consumer had been treated unfairly, whilst in the remainder of cases the fees had already been refunded.
The report also found that in the majority of cases, the business running the websites refunded the fees as soon as the FOS became involved.
The FOS report highlights the sort of credit broking conduct that FCA regulation is specifically designed to stop. We have advised numerous insurers who are unable now to introduce premium finance providers to prospective policyholders without the interim credit broking permissions; and we have assisted non-financial services companies unable to introduce business customers, suppliers or staff to credit arrangements simply because they may be individuals or small partnerships. It is a classic example of a regulatory burden disproportionately impacting the 'good guys' while the 'bad guys' carry on much as before.
It is therefore good to see the FOS putting out this warning early. It will presumably seek action from the FCA so as to avoid the slow response it got in respect of PPI. The FCA has so far declined to comment on the FOS' findings but we doubt, given the focus on the payday lending market, the report's findings will come as too much of a surprise. The rate at which complaint decisions are reversed on referral to the FOS will be a "red flag" to the FCA about very poor complaints handling practices. If the FCA doesn't act, perhaps we will see FOS' first 'super-complaint'.