Payday firms told they have weeks to improve
THE UK's 50 biggest payday lenders have been given 12 weeks to change their ways or risk being put out of action after the trading watchdog uncovered evidence of "widespread irresponsible lending".
The Office of Fair Trading (OFT) also proposes to refer the payday market to the Competition Commission after finding "deep-rooted problems" in how lenders compete with each other.
The OFT found evidence that the 50 lenders, which account for 90% of the market, were failing to comply with the standards expected.
They are in danger of losing their licences, which they need in order to trade, if they fail to clean up their act.
BRAND NEW FORD B-MAX ZETEC 1.0 ECOBOOST FOR ONLY £7685*View details
DRIVE AWAY A BRAND NEW FORD B-MAX ZETEC FOR ONLY £7685.
1.0 100PS Manual
Electric Windows & Mirrors
Quickclear Heated Windscreen
15" Alloy Wheels
Bluetooth with Ford Sync
*Drive away from only £7685 and then pay nothing for 24 months!
Contact: 01626 240583
Valid until: Sunday, June 30 2013
The OFT's report is the culmination of a wide-ranging probe into the £2 billion payday sector involving spot checks on the major lenders and an information-gathering exercise from all 240 lenders on the market.
The regulator's review said irresponsible lending was not confined to a few rogue lenders but was found across the industry, causing "misery and hardship".
It said that, despite payday loans being described as one-off, short-term loans costing an average of £25 per £100 for 30 days, up to half of payday lenders' revenue comes from loans which last longer and cost more because they are rolled over or refinanced.
The OFT said lenders have a "captive market" and a full investigation by the Competition Commission is needed to potentially impose "lasting solutions" to serve customers better.
It uncovered problems throughout the lifecycle of payday loans, from advertising to debt collection, and across the sector, including those who are members of trade associations.
Some of the worst problems 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.
The OFT said the 50 leading lenders, which were all inspected, must take "rapid action" to address the specific problems found with their businesses and must show within the next three months that they are fully compliant. Any which fail to co-operate will face enforcement action.
The OFT was handed beefed-up powers recently which mean that it can now stop lenders in their tracks immediately if it believes that consumers are in danger of harm. Previously, firms could continue to trade while they carried out lengthy appeals.
New financial regular will have teeth – Consumer Watch, Page 36