OFT Investigates Payday Loans Sector

The consumer watchdog has launched an “extensive” investigation into the payday loans sector on concerns that some payday lenders may be taking advantage of people in financial difficulty.
As part of the review by the Office of Fair Trading (OFT), 50 of the biggest players in the industry will face spot on-site inspections.
Increasing pressure on household finances has helped fuel the rise of short-term, high-interest lenders but the OFT is concerned that some people are being given loans without the proper checks being carried out.
It will investigate whether firms target people unsuitable for credit, or roll over the loans so that the charges escalate to the point where they become unaffordable.
The OFT’s director of consumer credit David Fisher 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’ licences to operate where necessary.”
The regulator has already written to several financial trade bodies about concerns over payday lenders’ advertising standards after assessing 50 websites.
The Consumer Finance Association (CFA), which was one of the trade organisations contacted and represents several large payday lenders, said the OFT’s approach was “absolutely right”.
“We have to identify areas of mal-practice and stamp it out. We know that there are payday lenders around who are less than transparent in their advertising and do not carry out the right levels of financial checks, in fact some of them brag about that, but they are not and will never be members of the CFA,” chief executive John Lamidey said.
“Research shows that payday loans have a valuable role to play in today’s society and meet a real need for consumers who like the short term, limited nature of the loan and want to avoid borrowing larger amounts over long periods of time.
“So the OFT’s review, by clamping down on poor quality payday lenders, will be good for consumers and good for our industry.”
The Consumer Affairs Minister Norman Lamb has also welcomed the review.
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