Complaints against payday advance lenders on the rise

The number of complaints made against payday advance lenders have risen by more than double over the past 12 months, as controversy over providers of short term loans mounted due to alleged aggressive marketing practices and high repayment costs.

The Office of Fair Trading recently released figures, revealing that the number of grievances filed by customers of instant cash loan companies increased to 1,535, up from last year’s figures of 700.  The regulator also reported that credit card users made less complaints to the OFT than instant cash loan borrowers, even though the instant cash loans industry has fewer borrowers than the credit card sector.

The Financial Ombudsman Service also reported a sharp increase in the number of complaints it processed regarding short term loans from January of 2011, indicating that complaints figures have risen by 72 per cent in comparison with the same period of time last year.  Consumer groups and politicians alike have been queueing up to take shots at the payday lender industry, despite their growing popularity with lower income earners who have had to turn to these lenders in the face of rough economic waters squeezing household budgets.

According to a Consumer Focus research study conducted in 2010, there were 1.2 million payday advance borrowers in the UK in 2009, up from the 2006’s figure of 300,000 borrowers.  Some recent estimates have put 2011 levels at as high as 4 million borrowers.

While the OFT has faced criticism in the past for being too lenient with instant cash loan companies, it has since announced it will be more closely examining lender practices, with plans to implement investigations and enforcement as well.

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