Payday Loans: Firms Given Reform Deadline
The UK's biggest payday loans firms are facing the prospect of being put out of business unless they implement swift changes to their practices within 12 weeks.
The ultimatum was issued by the Office of Fair Trading (OFT) following a wide-ranging investigation of the controversial sector as it emerged that a separate shake-up would place greater controls on advertising by such firms.
The Government will work with the Advertising Standards Authority (ASA) and the industry to make sure advertising does not tempt consumers into taking out payday loans that they cannot afford, and restrict the number of adverts firms put out per hour and the times they can advertise.
Lenders will also be required to make sure that interest rates are clearly displayed.
The OFT carried out checks on 50 major lenders and obtained information from all 240 lenders in the market.
The inquiry uncovered evidence of "widespread irresponsible lending", the OFT said.
It confirmed it was also proposing to refer the payday market to the Competition Commission after finding "deep-rooted problems" in how lenders compete with each other.
The OFT said it had found evidence that the 50 lenders, which account for 90% of the market, were failing to comply with the standards expected and were therefore in danger of losing their licences.
Some of the worst problems identified included lenders not carrying out proper affordability checks before lending or rolling loans over, failing to explain adequately how payments will be collected, acting aggressively to claw back debts and not making enough allowances for struggling borrowers.
OFT chief executive Clive Maxwell said: "We have found fundamental problems with the way the payday market works and widespread breaches of the law and regulations, causing misery and hardship for many borrowers.
"Payday lenders are earning up to half their revenue not from one-off loans, but from rolled over or re-financed deals where unexpected costs can rapidly mount up."
The regulator acted after charities reported rocketing numbers of complaints about payday lenders from borrowers.
The Money Advice Trust (MAT) recently said complaints about payday loans have doubled year-on-year to a record 20,000 in 2012.
New regulator the Financial Conduct Authority (FCA), which will oversee the consumer credit market from next year, will prioritise tighter rules on payday lending that could come into effect from April 2014.
The FCA's rules will be binding and if they are broken it will have tough enforcement powers including imposing unlimited fines and the ability to claw consumers' money back.
The Government is also planning to do more to encourage greater communication within the industry to stop consumers taking out multiple loans from different lenders.
Sajid Javid, Economic Secretary to the Treasury, said: "The Government is introducing a fundamentally new approach to regulating consumer credit, which will ensure that irresponsible firms and bad practice will have no place in the consumer credit marketplace.
"Consumers can have greater confidence that the new FCA will intervene early and decisively in their interests - thanks to its more focused remit, objectives and powers."
what do you think?
People should be wiser to these companies and know theres only one benefactor for such loans.it would help if the small print was larger and in english you can understand instead of in legal jargon .
So that horrific Katona woman will be looking for another job...
There is not one word in this report about regulating the the exhorbiant amount of interest charged often amounting to severel hundred %.It should be remembered that the loan sharks have been set up by under regulated British banks which in turn receive tax payers money on condition that they lend to industry.Well this is one industry they want kept secret one of profiteering from the abject poverty of our citizens. They make their own laws to suit themselves backed up by doorstep intimidation. I fear that this is just another Gov.make you feel better promise in the wake of a bye election defeat.
James R McCulloch
If you use a payday firm, you will find that in the future it will be more difficult to get a loan or mortgage. Why? Because you are seen to be a huge risk. Don't do it and your credit risk is better overall.
These companies should be banned as with online gambling sites
A good start would be to require these adverts to be presented for what they are - ie extremely high interest loans and not presented a some kind of whimsical jolly 'lets have a giggly funtime experience'.Then again these advertisers know precisely their target audience and care not in the slightest about the consequencesfor in need people out there.
I think they are great. Woop woop loadsa wonga
All such loan companies should be banned forthwith. If people are short of cash then they should go to a Bank. If they have been proven to be a bad risk then tough - they should get a better job. Too many people are living beyond their means.
How about regulating the crazy APR & charges these companies charge??? Or is that too much of a common sense idea for the moronic muppets we like to call our government
In these unsettled economic times people get desperate and common sense goes out of the window. These companies are NOT making normal loans over 2, 3, 4 years to buy a car or couch. They are "Pay day loans" the object of which is to provide cash to "tide you over" until you are paid at the end of the month by your employer... simples!! 4.000% APR is not unreasonable in these circumstances. The problem is that people are fundamentally stupid when it comes to managing money! The sooner basic "Money Management" is taught in schools, the sooner PDL's will die a natural death!
Go to your Bank and get an Overdraft! Or live within your means!
I agree Michael, I must admit to having used a pdl a while back when I was desperate, before I clicked the agree button it clearly told me how much I would be paying back, if that's not clear I don't know what is! Luckily for me I had budgeted for the month after so I was able to pay back without having to borrow again...but I can see how some people get more into debt because they are not that choosey who they accept and if you pay it back on the payday they eventually increase how much you can borrow. To all the people on here saying "go to the bank to get a loan"....are you serious! Bank loans are extremely difficult to get nowadays and can't be sorted out quickly. I do however agree with the comments that people need to learn how to budget and stop living beyond their means. On a final note I do think that the apr is extortionate that the pdl companies charge...I understand that it is a business but the government should do something to make the cap it at a certain rate
I'm glad you get my point about "Basic Financial Management" Jo Pleased to hear you've got yourself "back on track" now Jo
Totall agree, Michael. Money management was never taught when I was at school but working in financial institutions when I left certainly guided me on what NOT to do.
Their rates are almost as high as LLOYDS.
Unfortunately it is the poorest in society that often fall prey to this sort of loan company. Add that to a society that buys what they want not what they need and con not afford to and keep up Jonses pay day loan companies will continue to thrive