Payday lenders face fees backlash
Many payday lenders could be breaking the law by charging excessive default fees to borrowers who miss repayments, according to Which?
An investigation by the consumer group revealed that 10 of 17 payday lenders have default fees of £20 or more, and four charged £25 and above, with Wonga topping the table at £30.
The consumer group's legal opinion is that excessive default fees are unlawful under the Unfair Terms in Consumer Contracts Regulations 1999, which state it is unfair for lenders to charge a disproportionately high fee if borrowers default. The organisation has written to the worst offenders to challenge the level of their default fees, which it says should be no higher than the administrative costs.
Wonga, the most profitable payday lender, said in response: "We charge a one-off default fee of £30 on late repayments that reflects the additional costs we incur in collecting these loans."
The company added: "We are completely transparent about our default fee and it is clear to customers when they apply for a loan, and at three further times before their repayment date."
But, as Which? pointed out, high charges are one of the biggest factors that tip borrowers into a disastrous spiral of debt. Its research found that more than 50 per cent of payday loan users had incurred charges for missed credit repayments over 12 months, compared with 16 per cent for all credit users.
One in five payday users said they had been hit with "unexpected charges".
Richard Lloyd, executive director at Which? said: "We believe payday lenders are exploiting borrowers. If they cannot justify why these charges are so high and refuse to cut them, we would look to take further steps to protect consumers."