My Loan Company Has Stopped Lending. What Do I Need To Know?
There are undoubtedly unauthorised lenders out there who are less than scrupulous about how they do business. We wrote about how to spot unauthorised lenders in our previous post here. But they are a tiny minority. In fact, far from the media spun picture of a lawless sector controlled by spivs and fraudsters, the high cost, short term loan sector is highly regulated. When you hear stories about lenders being investigated by the authorities and perhaps being ‘banned’ from trading temporarily, the reality is often that the company is working with regulators to make its services safer and better for customers.
That said, if you hear that your loan company has suddenly stopped lending, it is bound to raise questions. So what exactly is happening when a lender withdraws its services, how does it affect you as a customer and what if the company has broken any rules?
Why is my lender being investigated?
The assumption when you hear a loan company is under investigation is that they’ve done something wrong. This is not necessarily the case. If we look at the payday loan market, the fact is, high cost, short term loans are risky products. As a borrower, you sign up to take on a loan at a very high rate of interest, typically 99% APR or above. Many people ignore just how much they’ll have to pay back, and get into financial trouble as a result.
The UK’s financial watchdog, the FCA, therefore keeps a very close eye on the payday loan market, and actively works with loan companies to do everything possible to look after the customer’s interests. The FCA has strict rules on what it calls responsible lending, which require providers to meet three criteria - ensuring a customer can afford the loan, being fully transparent about all terms and conditions, and having steps in place to help borrowers if they struggle to make repayments.
If we take affordability as an example, often the FCA will ask a lender to provide evidence of what it is doing to check a customer can afford to pay back a loan. If the FCA notices that the number of customers not keeping up with repayments with a particular company is on the rise, it might think improvements could be made with its affordability checks. It will then step in and work with the lender. Often this gets reported as if it’s a formal investigation for alleged wrongdoing, when in fact it might not be at all.
Why has my loan company stopped lending?
Some loan companies stop trading as soon as the FCA asks to look at how it is meeting its responsible lending obligations. This is because most lenders want to do what’s right by their customers and have no intention of selling loans that put people into financial trouble. If there’s something they can do to tighten up procedures, they are usually more than happy to work with the FCA. It also makes good business sense, because ultimately these companies depend on people being able to pay back their loans. If the FCA can help them change their approach to ensure that happens more often, some see it as a good opportunity.
What should I do about my loan repayments?
If your loan company has stopped lending, keep making your repayments as normal. If the FCA is satisfied with what the lender is doing, or makes recommendations that they take on board, they will probably be trading again as normal in the near future and it shouldn’t have any impact on your loan. If you have any concerns, contact your loan company directly and ask for advice.
What if I have been mis-sold a loan?
One other possible outcome when the FCA asks to look into a loan company’s responsible lending procedures is that it could decide the lender has not been careful enough in protecting customers’ interests. In that case, it could rule that previous loans have been mis-sold, which in turn could lead to an order to pay compensation. If that applies to you, you should hear from your loan company in due course.
If you believe your loan company may have broken any of the responsible lending rules - either by not asking you for any financial details when you applied for the loan, not being clear about terms or conditions, or by failing to offer you help if you have struggled to make repayments - you can make a complaint to the Financial Ombudsman.