We think that some payday lenders could be breaking the law by charging excessive fees when a customer misses their loan repayment. We’re challenging lenders to justify them or lower their charges.
It goes without saying that it’s not a good idea to take out a payday loan that you can’t afford to pay back. However, sometimes things can happen – such as losing your job or an unexpected expense – and even someone with the best intentions can end up not being able to repay a loan on time.
We’ve looked at the fees that payday lenders would charge someone if they failed to repay the loan in full on the due date and found that they vary from £12 to £30, with Wonga and The Money Shop topping the charts with £30 and £29 fees. Remember these default charges are levied on top of the interest that will continue to build up on the loan – so it’s easy to see how these loans can spiral out of control.
Exploiting borrowers with excessive fees
At Which?, we think it’s wrong for lenders to profit from people in financial difficulty – instead they should be helping them to get their finances back on track. Of course payday lenders need to make a profit, but the interest rates they charge are high enough for them to make a healthy return without needing to further exploit people struggling to repay the loan.
The Unfair Terms in Consumer Contracts Regulations (1999) state that penalty fees are unlawful if they are excessive. We think – and the Office of Fair Trading agrees with us – that fees should not be higher than is necessary to recover the administrative costs associated with defaulting, including sending out a letter to notify the borrower of his default and attempting to encourage the customer to rectify the situation.
Given that a number of payday lenders only charge £12 for default, we don’t see why others need to charge much higher fees of up to £30. We’re calling on lenders to show us that they are acting within the law, and that their fees are no higher than the administrative costs associated with defaulting. If they can’t do that, they need to lower their fees right away. We need your help to keep up the pressure on payday lenders – you can help by signing our petition here.
Have you ever been charged a fee for a late payment? Has the high fee caused your finances to get out of control?