Watch­dog con­cern over lenders tar­get­ing high-risk cus­tomers

The Daily Telegraph - Business - - Business - By Adam Wil­liams

HIGH-IN­TER­EST lenders are urg­ing vul­ner­a­ble bor­row­ers to take on debt for an ex­otic hol­i­day in a bid to boost their prof­its, the City watch­dog has said.

Credit firms are guilty of a string of poor prac­tice as they seek to lure in cus­tomers, ac­cord­ing to the Fi­nan­cial Con­duct Author­ity. In some cases, con- sumers al­ready strug­gling to get by were told that they could use bor­rowed cash for a va­ca­tion.

Al­most half of cus­tomers who use so-called high-cost credit firms re­gret bor­row­ing the money, the reg­u­la­tor found. The in­dus­try in­cludes pay­day loan com­pa­nies, doorstep lenders, store cards and rent-to-own providers. Many play­ers tar­get cus­tomers with a poor bor­row­ing his­tory who can­not get a bank loan.

The re­search was con­ducted be­fore the pan­demic, but the FCA warned that many bor­row­ers have since en­tered fi­nan­cial dif­fi­culty be­cause of Covid-19. Th­ese bor­row­ers are more likely to be vul­ner­a­ble, have a poor credit record and have lit­tle in sav­ings to fall back on.

Some com­pa­nies also used un­der­hand tac­tics to sug­gest that it is nor­mal for con­sumers to re­peat­edly bor­row money – with re­peat busi­ness ac­count­ing for more than 80pc of trade in sev­eral cases. The reg­u­la­tor’s re­port said that many firms would ad­ver­tise that cus­tomers could bor­row high sums to nor­malise the idea of tak­ing out large loans, a process known as “an­chor­ing”. Cus­tomers are told they can bor­row “up to £1,000” to tempt them into tak­ing out larger loans than needed.

Of­ten lender web­sites would have large sums dis­played as the de­fault op­tion, with long re­pay­ment pe­ri­ods sug­gested so that the ex­pen­sive in­ter­est rates ap­peared man­age­able.

In other cases, apps were used to en­cour­age cus­tomers to bor­row more.

The FCA said that without ad­e­quate warn­ings, cus­tomers were tempted to take on more debt than they could af­ford.

Some cus­tomers were then forced to open new credit ac­counts to pay off other lenders. This left them jug­gling mul­ti­ple credit ac­counts with no way of pay­ing them all off each month.

The re­view of 250,000 ac­counts also found that ris­ing debt lev­els caused anx­i­ety and stress among bor­row­ers.

Jonathan David­son, of the FCA, said: “We have sig­nif­i­cant con­cerns that re­peat bor­row­ing could be a strong in­di­ca­tor of lev­els of debt that are harm­ful to the cus­tomer.”

Mr David­son called on firms to re­view their prac­tices im­me­di­ately and make changes to their sys­tems.

He added: “We will con­tinue work­ing with firms to raise stan­dards, and we will con­tinue to take ac­tion where we see harm.”

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