The Office of Fair Trading (OFT) says it has uncovered "widespread irresponsible lending", as well as problems from advertising through to debt collections, among payday loan companies.
The OFT has given the 50 largest payday lenders, which account for 90% of the £2bn market and includes companies which are already members of trade associations, 12 weeks to improve their business practices or see their licences removed.
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Irresponsible lending was found to be "particularly acute", according to an OFT statement which suggested the roots of such may lie in the model for competition within the sector.
Problems included emphasising speed and access to loans rather than their price and the rolling-over or refinancing of loans, and the OFT has called for a full investigation by the competition commission. When the regulation of consumer credit passes from the OFT to the Financial Conduct Authority (FCA) in April 2014, the FCA would then be able to draw on the findings of the Commission.
According to the statement, particular areas of non-compliance with OFT standards included:
– lenders failing to conduct adequate assessments of affordability before lending or before rolling over loans
– failing to explain adequately how payments will be collected
– using aggressive debt collection practices
– not treating borrowers in financial difficulty with forbearance
As such, the OFT has opened a consultation on whether to refer the payday loan market for investigation and invites comments on its consultation page.
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By GlobalDataThe findings of the OFT can be found in its final report PDF, with the report and annexes alternatively available to download from its report page.
Responding to the OFT findings, the Consumer Finance Association (CFA) said it would review the report and that work was already underway to ensure loan customers were dealt with responsibly, all applications underwent credit checks, loan rollovers were limited and help would be provided for those in financial difficulties.
Particularly, CFA members were limited to rolling over a loan no more than three times and the Association added that four-fifths of customers repaid their loans to members on time.
The CFA will also soon introduce a Code of Practice for members.
richard.brown@timetric.com
