- Posted April 9, 2014 by
Ilford, United Kingdom
This iReport is part of an assignment:
The written word: Your personal essays
Pay Day Loans: Introducing New Reforms to Avoid Rogue Practices in Debt Recollection
There's a big news from the center that the 'Logbook Loans' industry, commonly known for providing loan facility against vehicle, are said to be scrutinized by the Financial Conduct Authority (FCA), over complaints registered by victims on following rogue practices to recover outstanding debts.
Claims of sexual harassment, forceful vehicle repossession and even death threats in some cases have been reported and are set to be investigated by the FCA, who today took over from the Office for Fair Trading as industry regulator.
The popularity of logbook loans in recent times has enabled people to access short-term, lump sum of finance, especially when major banks and financial institutions have been reluctant in providing loans to anyone who does not have a trustworthy credit report.
The loans are usually promoted as fast cash with `no credit checks`, and opting for such loans will provide you an opportunity to get large amount of cash than other short-term finance lenders, such as pay day loan companies.
However, in logbook loans you find yourself in a more dangerous and unstable position as compared to pay day one, as lenders normally asks for 50% car's value as collateral on top of charging over 500% APR on the loan amount, which entails that borrowers may lose their car under contractual terms unless they repay the loan amount on time.
The FCA have shown their worries over the unfair practices followed by logbook loan industry, debating that they are offering borrowers with `bad value for money`, and put them in risk of `critical danger`, by taking advantage of their financial helplessness and desperation caused by short-term cash flow problems. The FCA has also been identified allegations for unfair collection practices as non compliant with trading regulations, and will be taken seriously in order to decide the future of the companies.
Logbook lenders have borrowers over a barrel, said Christopher Woolard, director of policy, risk and research at the FCA.
"People often can't comprehend their car can be repossessed if they fall behind in repayments, lenders oftentimes ask borrowed to pay huge amount of interests to keep their vehicle when they can't afford to."
According to an FCI study it was revealed that over 40,000 people took out logbook loans in 2013 alone, with the average lending amount projected to be around £1,000, though some people borrowed amount as high as £50,000. In a case reported by a logbook loan borrower it's stated that he had been left stranded on an empty road by hatchet man of a logbook loan provider, who had been sent to reclaim their repayment manually.
The borrower reported to the FCA: "I was on my way to work … a car was following me and came up next to me. A man came to me and from that car and told me if I found £1,200 right there they wouldn't take the car. They wouldn't allow me get my stuff out of the car.
The Citizen's Advice has challenged that further issues have also emerged from the providers necessitating that people secure their cars against the loans, as borrowers who are aware that they will need to renege on their arrangement have looked to offer their cars to unsuspecting purchasers, who are then compelled to hand over their new car. It has been observed in a research that over a third of logbook loan users have been mistreated by unfair practices by their lenders.
The rogue practice followed by lenders is getting common in logbook loan business. Citizens advice have played a crucial in the life of people who have been subjected to misbehavior, molestation and even death threats by lenders trying to take away their cars, said Gillian Guy, Chief Executive of Citizen advice.
Mr. Guy asking FCA to put every possible effort in its power to clean up the industry, including the introduction of severe guidelines and rules that would make certain, illegal recollection practices are subject to punishments.
FCA chief Woolard asked organizations to act fast on introducing mandatory changes to the industry, and promised to shape the sector so that it put the customer's welfare first. He also added, we expect organizations to follow fair trading practices, and we have introduced new rules which will help us to tackle with those firms found not putting customer's interest first.
The FCA has already given its green signal on introducing new reforms in payday loan sector, following to have a close eye on firms and give more protection to borrowers who are struggling due to the backdrop of the recession at present.
Provisional changes that have been examined are the introduction of compulsory debt advice to be given by the provider to the lender upon application for a loan, a cap on the total interest charged by a lender on a loan, the termination of endless harassing calls when borrowers are in arrears, and stringent punishments on firms that found fall behind to follow industry regulations. The policy has already finalized and to be implemented in July which will see people to `roll over` their loans more than two times.