Complaints about high-cost short term loans have leapt by up to 250% in a year, according to the latest figures from the Financial Ombudsman Service (FOS).
FOS says complaints about high-cost loans often relate to affordability. Others involve claims that a firm acted unreasonably or unfairly when someone’s financial situation changed. FOS also says it has also seen that customers of short-term lenders have been left to struggle with unsustainable and persistent debt. It’s really rare for us to see a complaint that involves just one loan – it’s common for consumers to have 10-15 loans in a complaint and we’ve even seen instances that involve over 100 payday loans.
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%.
Breakdown of the number of complaints by all products across consumer credit:
Product | Q2 (Jul-Sept 2019) | Q3 (Oct – Dec 2019) | Q3 2018 (Oct – Dec 2018) |
Payday loans | 2,730(74%) | 4,265 (73%) | 7,653 (54%) |
Hire purchase | 1,654 (44%) | 2,081 (42%) | 2,313 (43%) |
Instalment loans | 1,653 (72%) | 4,535(75%) | 1,295 (67%) |
Point of sale loans | 1,234 (77%) | 1,374 (72%) | 1,087 (52%) |
Hiring/leasing/renting | 279 (43%) | 273 (37%) | 644 (50%) |
Catalogue shopping | 349 (41%) | 372 (41%) | 521 (43%) |
Home credit | 299 (61%) | 431 (86%) | 365 (33%) |
Debt collecting | 243 (25%) | 301 (35%) | 322 (32%) |
Guarantor loans | 172 (95%) | 303 (90%) | 177 (20%) |
Store cards | 96 (38%) | 109 (39%) | 125 (35%) |
Conditional sale | 229 (42%) | 192 (38%) | 116 (44%) |