The FCA has published a research paper produced for it by a third party. The research paper discusses the consumer experience of payday loans and logbook loans, as well as the experience of fee-charging and non-fee-charging debt management services.
The research paper sets out a number of conclusions including that:
- payday loans and logbook loans are best understood within the context of other forms of credit. Consumers take out payday and logbook loans in some instances because of the anonymity, accessibility and autonomy they might provide, because they cannot or do not want to ask family or close friends for money and often because they have few other options;
- very few of the respondents interviewed paid attention to APR when taking out a payday loan, with the vast majority focusing instead on the final payment due at the end of the loan period;
- there is evidence that lead generators play a strong role in the process of selling debt management services, and that this is sometimes not clear to consumers;
- there are examples of misleading advertising and sales in relation to payday loans. For example, consumers were unknowingly paying for loan referrals rather than actual loans, were unclear as to the charges for money transfers and that there was a lack of disclosure about the potential for rolling over or extending the loan until the point when the loan was due;
- debtors were often unclear about the charges involved in a debt management plan, including set-up charges and the front loading of fees. Debtors were also often unclear as to whether interest/charges would be frozen and in some cases this led to an escalation of debt once the plan had been set up; and
- in relation to debt management services there was a lot of confusion surrounding communication with creditors, with many consumers continuing to receive calls and emails from creditors complaining that they were not being paid. Debt management companies sometimes claimed that they could guarantee that creditors would agree to freeze interest once a debt management plan was set up, when creditors are not, in fact, obliged to agree to this.