Do ‘Doorstep Lenders’ still exist?
After readingan article in the Daily Mail today, I was amazed at the number of ‘doorstep lenders’ that were in the market. I had truly believed that this type of loan was a thing of the past, but according to the article, there are some 420 doorstep lenders still in operation in the UK and 1.3 people have these loans.
So, what are doorstep lenders?
Traditionally, a doorstep lender would complete the whole process at the customer’s home. If they were lucky this may be inside the home with a cup of tea, but in the main this was completed at the doorstep – hence the name. The loan would often be paid out in cash by the representative and then they would call around on a weekly basis to collect the repayments, also in cash. Stereotypically this was managed from a small notebook – no, not a notebook computer, but an actual paper note book.
In more modern times, according to the Daily Mail article, it was more common that the loan was applied for online and paid into the customer’s bank account, more like an normal online short term loan, however the repayments were still collected on a weekly basis via an agent visiting their home.
So what are the differences for the borrower?
Away from the obvious, the biggest difference comes when the borrower is struggling to make payments. Under normal circumstances, the agent turns up, knocks on the door, the repayment is handed over, a receipt is given and the agent leaves – simple. But it is the process when the borrower is unable or unwilling to pay that can be left open to issues.
With a fully online loan, if a payment is missed there is, in the main a great deal of physical protection and security. While the level of firmness used by debt collectors varies from lender to lender, this is restricted to SMS, telephone, letter or email. All of these can, if the borrower chooses, be ignored. Under current FCA regulations, the lenders is even obliged to cease communicating via certain of these methods, or at certain times, if requested not to do so by the debtor.
So however upsetting these conversations may be, there is no physical way that the lender can intimidate the borrower to take action. Furthermore, as all of these communications are stored, the lender is unlikely to say anything that could be reviewed by the regulator and deemed inappropriate.
Now while doorstep loans are still required to be operated with the same level of care, forbearance and reasonable behavior, there are both implied and real actions that can lead the customer to feel intimidated into paying, even if this leaves them unable to pay their essential living expenses.
The first of these is the physical intimidation that may be felt by a customer when an 18 stone, muscular debt collector arrives on the door demanding repayment. Even where none of this person’s actions suggest that they will act in such a manner, just in some situations, just the presence, and embarrassment, may be enough.
As the article suggests, in view of the fact that there is little auditing and accountability in what is said or done when the agent visits, some agents may be inclined to add additional pressure to the debtor, or suggest less appropriate actions when a repayment plan may be the better option. This is especially true if the collectors are paid a commission that is based largely or wholly on debts collected.
One example given by the Mail was a man that was visited on the same day that his son had died. It claims that they refused to leave until a family member had gone to the cashpoint to get payment.
These doorstep loans are still a regulated product and therefore if the customer is in financial difficulty then the lender is obliged to show forbearance. This is likely to involve some form of freezing interest and putting in place an affordable repayment plan. Above all, these lenders are 100% required to ensure that they have in place, and monitor the effectiveness of, policies to ensure the fair treatment of its customers.
The Citizens Advice Bureau (CAB) is therefore calling on the FCA to extend some of the protections offered to other products that they regulate in this sector to ensure that the same level of consumer protection is achieved. This includes for example rate capping and also the number of times these loans can be refinanced by the lender. There is even some call for the lenders to disclose the commissions paid to agents when they collect a payment.
The report also details that the CAB have found examples of lenders not carrying out appropriate checks before agreeing to lend. This is very important and something that has been a significant focus in the online High Cost Short Term Credit (HCSTC) since the FCA took over regulation in 2014.
In the years prior to this, many ‘payday’ lenders had been more willing to make riskier loans and rely on harsher tactics to recover the debts. This included inappropriate use of Continuous Payment Authority (CPA) to repeatedly raid customers’ accounts to get whatever they could and adding multiple fees and interest and rolling over loans many times.
Since it taking over regulation, the FCA has introduced several new rules to protect customers from these techniques from HCSTC lenders. This includes Rate Capping, rollover limits and the CPA ‘Ban’ following 2 failed collection attempts.
It would therefore appear from the Daily Mail and CAB reports that it is now the Doorstep lending sector that is, in some cases, causing borrowers not to be treated fairly.
Warning: Late repayment can cause you serious money problems - For help, go to moneyadviceservice.org.uk
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Author: Internal Compliance Department