Payday Lenders Face Regulator Inquiry
Several payday lending firms are facing a formal investigation over aggressive debt collection tactics amid concerns about poor practice in the wider industry.
The announcement was made by the Office of Fair Trading (OFT) which said it was taking several actions in the wake of a progress report on the sector during its continuing compliance review.
The OFT said it was unable to name the specific companies at the heart of its inquiry into debt collection but David Fisher, its director of consumer credit, said: "We have uncovered evidence that some payday lenders are acting in ways that are so serious that we have already opened formal investigations against them.
"It is also clear that, across the sector, lenders need to improve their business practices or risk enforcement action."
The OFT said it was writing to all 240 lenders in the market to outline its concerns but expects to warn the majority of 50 firms it has inspected that they risk enforcement action if they do not improve their standards.
Mr Fisher continued: "Our report shows that a large number of payday loans are not repaid on time. I would urge anyone thinking about taking out a payday loan to make sure they fully understand the costs involved so they can be sure they can afford to repay it."
Payday loans are products designed to cover a person's costs until a salary is paid but have stiff penalties if repayments are missed with some imposing annual interest rates of more than 4,000%.
Recent research from Which? suggested 57% of customers had incurred penalties while 20% who took part in the survey complained about being hit by unexpected charges.
Among the OFT's biggest concerns was the adequacy of checks made by some lenders on whether loans will be affordable for borrowers and the proportion of loans that are not repaid on time.
The industry has previously insisted it has high customer satisfaction levels.
In reaction to today's report the UK's biggest payday lender Wonga said: "We welcome the on-going OFT review of payday and short-term lending, which seeks to provide further protection for consumers and clamp down on unscrupulous lenders.
"We provide a valued, transparent service to more than a million customers and want to see rogue practices rooted out across all financial services.
"Consumers are crying out for clear pricing, more control and fair treatment, while robust credit checks are essential to ensure appropriate lending."
The regulator had cited concerns in its interim report that lenders' advertising often appears to target people who are already in financial difficulty and encourage them to roll over loans.
Around a third of payday lending websites looked at by the OFT included statements such as "no credit checks", "loan extension guaranteed" and "extend loans up to four or five times".
The OFT said it would publish in the New Year a full report setting out further findings on compliance, including whether wider action is needed to tackle problems in the sector.
The regulator has also updated its Debt Collection Guidance, focusing on the continuous payment authority mechanism commonly used by payday lenders to collect repayments.
According to the OFT, it makes clear the minimum standards expected of traders.
what do you think?
payday lenders = loan sharks
Loans for stupid people 2080% =1785% =300+ .Do you really need that service or article just wait and save dummies
20 yrs ago.Mike,i may well have given u the thumbs down,but not now.People need to realize the difference between WANTS and NEEDS.They are now paying a high price for spending on their WANTS at the expense of their NEEDS
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Why are there so many sharks suddenly appearing.Only a few years ago Payday loans were unheard of. Why all of a sudden?
last nights news stated that the usurers currently preying on the poorest here in the UK would, if they tried the same trick in Japan, be facing 10 years in jail for their crimes.