OFT goes after 50 payday lenders
Published by Max Salsbury for 24dash.com in Communities and also in Campaign, Finance, Legal
OFT goes after 50 payday lenders
The OFT (Office of Fair Trading) has started formal investigations into 50 payday lenders over aggressive debt collection practices.
The OFT is also concerned with the adequacy of checks made by some lenders on whether loans will be affordable for borrowers. It is additionally writing to all 240 of the country's payday lenders to express its concerns over poor practices in the sector.
Some payday lenders charge APRs of over 4000% on their loans, and have been described by Labour MP Stella Creasy as "legal loan sharks".
The OFT is continuing to gather and analyse information about activities in the sector. Its emerging findings are based on various sources, including an inspection of 50 payday lenders' websites, 686 consumer complaints and a mystery shopper exercise involving 156 online and high street lenders.
A report is expected to be published next year that will set out further findings on compliance, including whether wider action is needed to tackle problems in the sector.
The OFT has also published revised Debt Collection Guidance, focusing on continuous payment authority (CPA), a mechanism commonly used by payday lenders to collect repayments.
The guidance helps to ensure that traders with a consumer credit licence do not misuse CPA. It makes clear that the OFT expects lenders' use of CPA to be reasonable and proportionate, and to have regard to a borrower's financial position.
The guidance sets out the minimum standards expected of traders and includes clear examples of unfair/improper use of CPA including:
Using CPA without the informed consent of the borrower or in ways that have not been agreed
Failing to explain adequately how CPA works and how it can be cancelled
Not taking steps to establish the reasons for the payment failure and whether the borrower may be in financial difficulties
Trying to take payment where there is reason to believe that there are insufficient funds in the account
Continuing to use CPA for an unreasonable period after a scheduled payment was due
David Fisher, OFT Director of Consumer Credit, said: "We have uncovered evidence that some payday lenders are acting in ways that are so serious that we have already opened formal investigations against them. It is also clear that, across the sector, lenders need to improve their business practices or risk enforcement action.
"Our report shows that a large number of payday loans are not repaid on time. I would urge anyone thinking about taking out a payday loan to make sure they fully understand the costs involved so they can be sure they can afford to repay it.
"Our revised guidance makes it absolutely clear to lenders what we expect from them when using continuous payment authority to recover debts and that we will not accept its misuse."
Russell Hamblin Boone, Chief Executive of the Consumer Finance Association, said: “The CFA and its members have fully supported and actively participated in the OFT’s review of the payday lending sector. We understand the OFT’s concerns around some of the practices adopted by some lesser players in the payday lending market.
“Our biggest advocates are our customers themselves. So as well as highlighting areas of poor practice, the final report must acknowledge the high levels of satisfaction and the value our customers place on short-term credit products.
“The CFA represents some of the largest payday lenders and we are committed to continual improvement. We believe that our enhanced Code of Practice, which comes into force next week, sets the standard for the industry. It commits our members to delivering significant improvements in many of the areas identified in the OFT’s report including affordability assessments; transparency of marketing, advertising and communication and; a limit on rollovers. Nonetheless, we will continue to work proactively with the regulator and Government to identify further areas to enhance consumer protection.”