The Office of Fair Trading (OFT) has announced it is giving the leading 50 payday lenders – accounting for 90 per cent of the payday market – 12 weeks to change their business practices or risk losing their licences, after it uncovered evidence of widespread irresponsible lending and failure to comply with the standards required of them.
The action was announced in the final report on the OFT’s compliance review of the £2 billion payday lending sector. The review found evidence of problems throughout the lifecycle of payday loans, from advertising to debt collection, and across the sector, including by leading lenders that are members of established trade associations.
But responding to the OFT’s report national charity Citizens Advice calls for guilty lenders to be stopped from trading immediately. Gillian Guy, Chief Executive at the charity, said: “Payday loans are proving toxic for many people. Unscrupulous lenders are ramping up costs when customers can’t afford to repay, and are emptying bank accounts to claw back loans, leaving people without a penny to their name. What’s worrying is that these loans are often given without proper credit checks, so too many people are given loans they won’t realistically be able to pay back.
“For too long this industry has acted as a law unto itself. So it is good to see the OFT planning to remove the licences of lenders who do not improve within the 12 week deadline. But to truly protect consumers, lenders who are still found guilty of flouting guidelines must be stopped from trading straight away.”
According to the OFT, particular areas of non-compliance 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.
The fifty leading lenders, each of which was inspected, will have to take rapid action to address the specific concerns the OFT identified with each of their businesses. They must demonstrate within 12 weeks that they are fully compliant, or risk losing their licence. Failure to co-operate with this process will trigger enforcement action.
Clive Maxwell, OFT Chief Executive, said: “Irresponsible lending is not confined to a few rogue payday lenders – it is a problem across the sector. If we do not see rapid, significant improvements by the 50 lenders we inspected they risk their licences being removed. Payday lending is a top enforcement priority for the OFT.”
The OFT is advising consumers to think carefully before taking out a payday loan and to be aware of their rights and where to go if they have a problem. Consumers struggling to repay debts can contact Citizens Advice for free, impartial advice on: 08454 040506 or at www.adviceguide.org.uk. Individual consumers with complaints should approach their lender in the first instance. If they are unhappy with the response, they can take their complaint to the Financial Ombudsman Service on: 0800 023 4567 or at www.financialombudsmanservice.org.uk.