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FCA concerns trigger past business review at payday lender

A payday lender has agreed to carry out a past business review and suspend all outbound debt collection activities after the FCA raised “serious concerns” about its practices.

In a voluntary agreement between the regulator and CFO Lending published this week, the FCA says it is concerned the lender has misused banking information provided by customers to repay outstanding debts.

CFO Lending has to carry out a skilled persons report, also known as a section 166 report, which the regulator uses to check for weaknesses in a firm’s systems. It will also have to set up a consumer redress scheme.

The FCA says there have been systems errors relating to the automatic calculation of customers’ balances, which has resulted in some customers’ outstanding loan balances being incorrect.

The regulator also has concerns that CFO’s communications to customers, its debt collection training materials and staff incentive schemes are not compliant with its rules.

It says it is concerned these practices prioritise the collection of money over fair treatment of its customers, particularly those who are vulnerable.

The FCA took over the regulation of the consumer credit market from the Office of Fair Trading on 1 April. CFO ceased to provide payday loans from 19 May, but continues to collect outstanding debts.

The FCA says its concerns arose following visits to the firm in June and July.

The s166 report will investigate whether any customers have been affected by the misuse of banking information and if so the amount of redress due.

The report will also investigate redress relating to the errors in calculating customer balances, and review all of CFO’s training and guidance materials, communications to customers and staff incentive schemes. The lender’s inbound debt collection activities will be monitored for a set period.

CFO will suspend all outbound debt collection activities, including collection calls, mail, email and text messages.

This suspension will continue until the s166 report is complete and the lender’s practices are found to be compliant with the FCA’s requirements.

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Comments

There are 7 comments at the moment, we would love to hear your opinion too.

  1. Quite right too. I watched yesterday an episode of Have I Got News For You in which it was revealed that the cost of borrowing from Wonga £1 for one day is (or was) £6.57! If that’s not barely legalised loan sharking, I don’t know what is.

  2. Julian: If I ordered a single eight-inch nail by mail order, with postage and packing it would cost me 100x as much per nail as if I ordered a pack of 100 nails. That doesn’t mean the seller is ripping me off, it means they have fixed costs which have to be covered. There are better sticks to beat Wonga with than that.

  3. Nobody borrows just a quid, be sensible. The £1 was used to illustrate the ratio of one unit to the total cost of the loan, whether the unit is £1, £100 or £1,000.

  4. We're all doomed!!!!! 19th August 2014 at 4:10 pm

    I have a lot of sympathy for Sascha’s view.

    Put simply, payday lenders lend small amounts. It is just not worth anyone’s while lending, say £100, and earning 20p on it if it is repaid after a week. (@ c10% interest, annualised). The risk far outweighs this reward.

    There are fixed costs involved in processing a transaction. Perhaps (if able under current regulation) payday lenders should move toward charging an admin fee, together with a more realistic rate of interest. This will still show in a very high APR, but make things more sensible from a transparency point of view.

  5. Borrowing £200 for a week costs you £219.89 – For short term emergency funding thats not outragous. If I borrowed that from a friend I would probably add £20 to the return for his trouble.

  6. Wonga VS unauthorised OD

    Daily fees for Unplanned Overdrafts

    You will pay a daily fee for using an Unplanned Overdraft. The amount of the fee will be worked out at the end of each day (including weekends and bank holidays) on the balance of your Unplanned Overdraft.

    We will charge you a maximum of eight daily fees in a monthly billing period.
    Unplanned overdraft balance is £25 or more
    £10 fee per day
    An overdraft continues until it is repaid. So, at the start of any monthly billing period, if you still have an overdraft from the previous monthly billing period, you will incur a further Monthly Overdraft Usage Fee and, if it is an Unplanned Overdraft, up to another eight daily fees (depending on when you pay it back).

    Wonga £100 for 8 days = £15 interest
    Lloyds unplanned o/d £100 for 8 days = £80 fees + od usage fee £6 + Interest.

    If banks don’t allow customer to increase their over then Wonga serves its purpose.

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