As complaints against payday lenders double, FOS warns that the numbers are only the 'tip of the iceberg'.
The Financial Ombudsman Service (FOS) has revealed that complaints about payday lenders doubled in the last year. However the watchdog believes the figures are not a true representation because so many customers struggling to repay loans feel powerless to make a complaint.
The FOS received 5,395 enquiries about payday loans over the year but only dealt with 794 formal complaints and suggests that part of the reason for this is that firms consistently fail to keep consumers informed about their rights to challenge decisions.
However Paul Clark, CEO of Charter UK, believes that now that the entire consumer credit sector falls under the Financial Conduct Authority, firms will only onyl have to not only adopt an open culture for complaints, but essentially prove how they are achieving the right outcomes for customers in the way that they respond to complaints.
"The increasingly poor record of complaints generated by payday lenders of late is almost perfectly opposite to the improvements currently underway in mainstream banking," he said. "However the news isn't as gloomy as it might appear for this apparently troubled corner of the industry.
"Consumer credit, unlike mainstream banking, only came under the remit of the Financial Conduct Authority in April of this year, having previously been regulated by the comparatively relaxed Office of Fair Trading.
"This has meant two things: firstly, that the guidelines under which payday firms must operate have changed dramatically, and secondly that customers have gradually been made more aware of their rights to seek redress for their grievances.
"The combination of these two factors would, in any situation, lead to a rise in complaints. For payday lenders and their customers this can in fact be seen as good news. It is quickly becoming clear that firms which don't improve will not be permitted to survive in the current market, either by their customers or the regulator.
"However, for the firms that are willing to change and find their undeniably valuable role in this market, the tide of complaints can be used as a roadmap, pointing companies at exactly where change is needed, and providing solid guidance as to what that change will look like."