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Island ‘lags behind UK’ in financial protection

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VULNERABLE Islanders are being exploited with ‘pay-day-style’ loan deals and ‘unfair’ borrowing terms and conditions, and Jersey’s protection for consumers from extortionate lending lags behind the UK, the financial disputes mediator has warned.

Douglas Melville is the Channel Islands Financial Ombudsman. Picture: DAVID FERGUSON (21892975)

Numerous complaints were made to the Channel Islands Financial Ombudsman last year about unregulated lending firms outside the standard banking sector offering high interest and short-term loans to Islanders suffering financial difficulties.

The Ombudsman, Douglas Melville, said that the Island needed to catch up with the UK, which had brought in stricter regulations to protect financially vulnerable people from such deals in recent years. It is understood that work is currently being carried out to tighten up regulation.

Citizens Advice chief executive Malcolm Ferey said that deals offered by a number of loan companies in Jersey were the equivalent of much-maligned ‘pay-day’ loans that are marketed by UK firms.

He added that while there were a smaller proportion of cases in Jersey than the UK, there was less legal protection against unfair contracts and conditions.

‘In Jersey there are organisations that offer short-term high-interest loans. They won’t market them as pay-day loans, but that is in effect what they are,’ he said.

‘For people who are desperate for money, it can seem like a solution. But if you are in that situation what you need to do is completely reconstruct your finances.

‘While it’s not as much of a problem here as it has been in the UK, there are some high-risk borrowers and that is leaving people in vulnerable situations.’

Mr Melville was appointed as the Ombudsman, who handles complaints about financial services firms, when the office was established in 2015 (News Focus – page 8).

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He said that he had had to order a number firms to alter ‘unfair’ terms and conditions on loans which they had made to customers since his appointment.

‘There’s no law on unfair contractual practices in this jurisdiction, but we have made rulings that involved variations to existing agreements we have seen and were unfair,’ he said.

‘It’s my understanding that there is work going on in the area of non-bank credit in both Jersey and Guernsey and that should provide more clarity about what terms and conditions are acceptable. It will also help us with our work if there are benchmarks in place.

‘Certainly in the UK a robust framework is in place for customer protection and that is something that we would like to see for this jurisdiction as well.’

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He added that there were a number of different ways in which consumers were being stung by non-bank lenders through unfair contracts, including the offering of short-term and high-interest loans.

‘We have had cases where people have signed up to revised terms and conditions that make it more likely that they will default,’ he said.

‘We have cases where people secure a loan against their property and are at risk of losing their home. And we have cases where people seek loans on very bad interest rates, like pay day loans.

‘It may not seem bad for them to pay, let’s say £50 on a £200 or £300 loan, but if you look at the interest rate – if it was applied on an annual basis, then it is extremely high.’

Mr Melville said that Islanders should always seek advice from their high-street bank, review offers from several lenders and consult family and friends for advice, if they are desperate for money and considering short-term borrowing.

Since 2014, the UK has introduced a number of regulations to protect vulnerable consumers from lenders offering high-cost and short-term credit.

Ian Heath

By Ian Heath
author

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