Companies offering payday loans have been warned that they may face fines or closures if they don’t improve the way they lend money and collect debt.
The Office of Fair Trading (OFT) has written to all 240 payday lenders highlighting concerns relating to poor practices in the market and has launched formal investigations into several payday lenders over how they pursue borrowers who have defaulted on their repayments.
The organisation will publish its full report in the new year, when it has ended its investigation, which started in February and involved analysis of the operations of 50 lenders, which account for the majority of loans.
Concerns were raised over whether firms are making adequate affordability checks on loans for borrowers; the proportion of loans that are not repaid on time; the frequency with which some lenders roll over or refinance loans and how companies treat borrowers who get into financial difficulty.
Russell Hamblin Boone, Chief Executive of the Consumer Finance Association, said members have been fully supportive and compliant of the review.
“We understand the OFT’s concerns around some of the practices adopted by some lesser players in the payday lending market.
“Our biggest advocates are our customers themselves. So as well as highlighting areas of poor practice, the final report must acknowledge the high levels of satisfaction and the value our customers place on short-term credit products.
“The CFA represents some of the largest payday lenders and we are committed to continual improvement. We believe that our enhanced Code of Practice, which comes into force next week, sets the standard for the industry.
“It commits our members to delivering significant improvements in many of the areas identified in the OFT’s report including affordability assessments; transparency of marketing, advertising and communication and a limit on rollovers. Nonetheless, we will continue to work proactively with the regulator and Government to identify further areas to enhance consumer protection.”
Joanna Elson, Chief Executive of the Money Advice Trust, says: “Payday lending is an industry that requires close scrutiny. We have a lengthy list of concerns about the practices of many companies in the sector and we hope the OFT review will kick-start a more serious consideration of the problems payday loans create.
“Payday loans have a habit of making a bad situation worse. Many thousands of people have come to us for help after having seen their debt problem made far more serious by taking out one or more payday loans.
“Whilst it is important for regulators to get a handle on the situation, it is also important for individuals to be aware of the considerable dangers of going down the payday borrowing path. It always makes more sense to seek free, impartial debt advice before taking out a payday loan. Free advice is available over the phone with National Debtline, online through My Money Steps, or face-to-face at your local Citizens Advice Bureau. Advice can ensure any borrowing decisions come from a more informed position where the potential consequences of borrowing and other options are all better understood.”
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