Citizens Advice has warned that not checking if people can afford loans is a widespread problem in the payday loan industry.
Yesterday, Wonga was forced to write-off the loans of 330,000 people because they did not properly establish if they could repay.
Gillian Guy, chief executive of Citizens Advice, said: “A lack of checks by lenders is setting a debt trap for borrowers. People are left struggling to make ends meet as high interest rates and charges quickly ramp up debts. The FCA is right to come down hard on Wonga after it found it had poor affordability processes but it is not only lender guilty of this; it is a widespread problem within the industry.
“Citizens Advice has found that in half of payday loans cases reported to us, lenders didn’t ask about people’s personal finances. Checking whether someone can actually afford to repay a loan should be at the heart of any credit process. The action by the FCA today should be the start of things to come to clean up the payday loan market and lenders changing their practices.”
New evidence from Citizens Advice released earlier this week found only one in five people who were struggling to repay a payday loan had the interest frozen and only a quarter thought the lender treated them sympathetically.
