Following the OFT’s confirmation that it has launched an extensive review into the payday lending sector, we decided to take a closer look at what has led to this crackdown.
The review has been prompted by worries that some people in financial difficulty may be being taken advantage of by payday lenders.
According to the OFT, the issues of concern it will be focusing on are:
- Giving loans without first checking adequately that the borrower can afford to repay them.
- Inappropriately targeting particular groups of people with clearly unsuitable or unaffordable credit.
- Rolling over loans so that charges escalate and the loans become unaffordable.
- Not treating borrowers that get into financial difficulties fairly.
David Fisher, OFT Director of Consumer Credit, said: “We are concerned that some payday lenders are taking advantage of people in financial difficulty, in breach of the Consumer Credit Act and not meeting the standards set out in our guidance on irresponsible lending. 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’ licenses 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 Director at Debt-Simple Limited, Aftab Zahoor, commented on the regulator’s new stance: “It definitely looks like a shift in attitude by the OFT. This crackdown is long overdue and the practice of payday lending should be monitored more rigorously. Payday lenders can provide short-term, high interest loans to consumers, but some aren’t taking into consideration whether or not they can afford to repay.”
He explained that, with regard to the debt industry, any impact felt will be positive. “We have seen numerous clients being able to obtain payday loans very easily, before and while they are on a debt management plan. If the easy access can be tightened up, it will help consumers repay other debts and not have this spiral out of control.
“I can see the benefit to some of the short-term loans, but the majority of consumers will inevitably be repaying for long periods and these debts will continue to increase. I welcome the OFT putting these firms under the microscope.”
Norman Lamb, Consumer Affairs Minister, said: “The OFT is right to launch a compliance review of its guidance in the payday lending market to make sure that companies are adhering to agreed standards and in particular to identify those practices which can harm vulnerable consumers.
“We look forward to seeing the findings which, where necessary, will be used to take further enforcement action and drive up standards within the industry. This includes improving consumer protections and having an open and transparent lending market.”
Later this year, the final report of the review and information on follow up action will be published.
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