OFT to investigate payday loan firms
Payday loan companies are being hunted by the Office of Fair Trading (OFT) after the announced a new review of the sector because, ostensibly, people are rather concerned that these companies are exploiting poor people, putting them in more debt rather than being at all helpful.
If you don't know about these companies, basically, they offer short-term loans with huge APRs (some as high as 16,000%) as a quick-fix to a short-term problem. Of course, this isn't always the case and people inevitably find themselves in a much worse position after seeking one of these loans.
And now, the OFT are going to visit 50 major payday lenders and survey industry to try and determine whether companies were complying with the Consumer Credit Act and the current guidance on irresponsible lending. They will also look at evidence from consumers.
The review will look at how lenders are behaving in key areas such as: Are loans being given out without adequate checks to see if borrowers are able to repay, as well as the working out whether particular groups are being inappropriately targeted. They'll also investigate roll-over loans and the charges that follow.
The OFT's guidance says lenders shouldn't be "inappropriately encouraging borrowers to increase, aggregate or rollover existing debt to unsustainable levels."
The OFT's director of consumer credit, David Fisher, says: "This is unacceptable. We will work with the trade bodies to drive up standards, but will also not hesitate to take enforcement action including revoking firms' licences to operate where necessary. The payday sector has grown considerably since the OFT's high cost credit review in 2010. This, combined with the current tough economic conditions, makes it the right time for us to review the industry and improve protection for consumers."
The Consumer Finance Association (CFA), which represents 70% of the payday lending industry, is welcoming the review. Chief executive John Lamidey said: "The CFA represents some of the largest payday lenders and believe that our Code of Conduct embodies best practice and sets the standard for the industry. Nonetheless, our Code is currently being enhanced to include many more consumer protections and this is due to be launched very soon.
"We welcome the OFT's review and the CFA and its members are looking forward to working proactively with them to identify areas to enhance consumer protection."