The Financial Conduct Authority hasn’t fixed the payday loan market – and the regulator needs to look into costly instalment loans, StepChange Debt Charity has warned.
The proportion of people coming to the charity with payday loan debts has fallen from a peak of 23% in 2013 to 16% this year.
Of people taking out payday loans a quarter (26%) do not think the lender took reasonable steps to check whether they were able to repay.
Of those who struggled to repay one in five (21%) had charges and interest added to their debt, less than a third (29%) were given an affordable repayment plan and one in 10 (11%) were threatened with legal action.
After introducing a price cap of payday loans in January that meant that no borrower will ever pay back more than twice what they borrowed, the FCA is reviewing its price cap of payday loans next year.
Mike O’Connor, chief executive of StepChange Debt Charity, said: “Regulation can make a significant difference to broken markets and FCA action over the last few years has gone some way to fixing the worst excesses of payday lending, but there is clearly still work to be done.
“Poor lending practices and the poor treatment of people in financial difficulty have serious consequences.
“They trap people in a cycle of repeated borrowing and as their balances continue to mount, so does the stress and anxiety that comes with severe problem debt.
“It is essential that the FCA review of the payday lending cap is broad enough to fix areas of consumer detriment and poor lending practices.”
The charity added that the FCA need to review the growth of costly instalment loans, which are repaid over time with a number of scheduled payments.
It also called on the government to look at new ways to provide greater access to more affordable credit.
It highlighted international examples such as Australia’s ‘Good Shepherd’, which provides low or no interest loans to financially excluded households, as schemes that the UK could look to emulate.