Some payday loan brokers are making as many as one million attempts every month to debit loan arrangement fees from the bank accounts of their customers, who are often already in financial difficulty, according to RBS and NatWest.
Terry Lawson, Head of Fraud and Chargeback for RBS said:
“Since July, we’ve seen large numbers of customers incurring charges they don’t expect when using a payday loan broker.
“At its height, we were getting more than 800 calls a day on unexpected fees, but we’re pleased to say we’re seeing this decrease on account of the actions we’re taking to help stop these sharp practices.”
Payday loan brokers are largely online companies that help to find loans, but are not lenders themselves. Brokers have a clause which permits them to charge customers to find a loan.
Often this money will be taken by third-party companies who have received the customers’ bank details from the broker. Some brokers share this information with as many as 200 other companies.
RBS states many customers are unaware of this, saying their customers have seen sums from £50 to £75 taken from their accounts by companies they do not recognise.
RBS and NatWest have terminated their payment arrangements with 20 payday loan brokers and the bank is working with merchant acquirers to blacklist payday loan brokers where possible.
The problem with payday loans
Payday loans are a very expensive way of borrowing money. The representative APR typically runs into the thousands, but as they have relaxed lending criteria they are often used as a last resort.
Recently, the industry has come under fire from the Financial Conduct Authority (FCA), who have taken measures to write off 330,000 loans from the industry’s biggest player, Wonga.
The FCA is currently taking steps to reform the consumer credit industry in an attempt to stop unsustainable debt.
Cheaper alternatives to payday loans
Credit cards are often the quickest way of borrowing money and often come with an interest free purchase period. Even ‘credit builder‘ and ‘bad-credit‘ cards, which have relatively high interest rates, will be cheaper than borrowing from a payday loan.
Low APR credit cards are the best option for long term borrowing.
Personal loans can be cheaper for borrowing larger sums of money to be paid back over a longer period, but they have fixed monthly repayments that will need to be met until the loan is fully paid off.
If you are in difficulties you should seek independent financial advice.