Scotland’s new national consumer advice service has launched a campaign to inform Scots of their rights if borrowing from a payday loan company this Christmas.
The consumeradvice.scot service, run by the charity Advice Direct Scotland and funded by the Scottish Government, has also published tips on budgeting to help people avoid borrowing cash at exorbitant rates.
The advice includes highlighting the role of credit unions and the importance of checking the APR percentage figure, not the monthly repayment level.
Consumeradvice.scot was launched in April this year following the devolution of powers to the Scottish Parliament, and provides free, impartial and practical advice on any consumer-related issue.
Colin Mathieson, knowledge coordinator with consumeradvice.scot said:
“Christmas is just around the corner, and with that, many of us are tempted – or forced – to overspend and overstretch our finances. “With parties, dinners and gifts to pay for, we may wake up on the other side of New Year with a nasty financial hangover. “Banks often have strict guidelines on who can borrow, taking into account their ability to repay, so the alternative for many is to reach out to easier-to-obtain payday loans, with higher rates of interest, resulting in a much larger long-term repayment. “This can cause those already in debt to become even deeper embroiled in the cycle of further high interest, borrowing to meet loan repayments, and other monthly commitments. “But it’s important that consumers know their rights and many customers and former borrowers of payday loans do have the ability to claim back the exorbitant interest that they have lost. “And by following our tips on budget management, people across Scotland can avoid resorting to payday loan lenders.”
The Financial Conduct Authority has a ‘good practice customer charter’ which sets out rules that payday loan companies must follow.
It states that payday loan companies are responsible for ensuring that the affordability of any loan is assessed, including any potential customer’s financial situation and personal circumstances.
When a customer is unable to realistically pay back the loan at the time it is taken out, then the company should refuse the application.
The rules are established so that lenders should also inform applicants that this method of high-interest borrowing is not intended as a long-term financial solution, and that customers should not be entering into an agreement for such a payday loan if they are experiencing financial difficulties.
By writing to the lender, advising them of the facts and outlining what the customer would like the payday lender to do about this, they may be able to get interest on existing loans frozen, or alternatively, be able to repay the balances over a longer period of time.
In this situation, the lender is required to respond within five days of receipt of the letter, acknowledging the complaint and advising what the next steps in the process will be.
If a further response is not received within eight weeks, then a complaint can be made to the Financial Ombudsman Service, advising that a satisfactory response has not been received from the payday lender within the outlined timescales.
Plan meals and save pounds – By
planning meals in advance and writing a shopping list before going to the
supermarket, you can avoid waste and the purchase of unnecessary items.
Credit unions care – A loan
from a credit union can be much cheaper in the long-run than a payday
loan. Save to borrow and borrow locally.
Compare prices and shop around
– The increasing cost of living is one of the biggest costs that
encourages people to take out payday loans. Shop around for things like
energy costs and mobile phone contracts and remember to switch to better
deals when they become available.
Remember it’s the APR % that
stings and not the monthly payment – Higher rates of interest (APR %) can
be what cost more in the long run. Remember to compare interest rates as opposed
to the monthly repayment amounts.
Sleep on a purchase – Remember
that impulse buys and items that are unnecessary can seem less appealing
in the morning. Consider expensive purchases for longer and ask yourself
if you really need them.
Callum, 26, from Glasgow, contacted consumeradvice.scot about his experiences with payday lenders after being refused a personal loan and credit card with his bank due to not meeting the affordability criteria set out in the application process.
“My wages have always been lower than my friends. They can go away for weekends and holidays without as much thought about the costs involved. For me, having to save for these luxuries, whilst paying my monthly bills means making a lot of sacrifices and living cheaper.
“I’d paid the flights and accommodation off by saving, but the spending money was a struggle for me…Ibiza isn’t a cheap place to go to and I borrowed £800 for the week. It was all very well and good at the time of the holiday, but the following month the realisation hit me that the monthly repayments were so expensive, almost £270 per month, and in the long-term, paying back almost double what I had borrowed when paying this over six months.”
Callum had to take out another three payday loans to make the monthly commitments and quickly found himself digging deeper into debt. It was only by understanding his rights as a consumer and understanding that the payday loan company should not have originally authorised his loan that he was able to take back control. He used the process outlined by consumeradvice.scot to regain control of his finances, allowing him to clear loan balances over a longer period of time.
Consumer advisors can provide practical and impartial advice on how to resolve consumer problems, inform people of consumer laws which may apply to their situation, provide template letters which consumers can use to contact the trader or service provider they are having issues with, and pass relevant information onto Trading Standards for further investigation. They cannot make a complaint on an individual’s behalf or carry out any legal action on an individual’s behalf.
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