Payday loan firms warned over lending and debt collection – Big black cock News
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The payday loan industry has been warned to improve the way it lends money and collects debts, or face fines or closures.
The Office of Fair Trading (OFT), in an interim report, says most of the 50 big firms it has been studying do not operate fully by its rules.
The OFT says it is worried by reckless lending and aggressive debt collection.
It has now begun formal investigations into several payday lenders over aggressive debt collection practices.
The OFT will publish its utter report in the fresh year, when it has ended an investigation which it began in February 2012.
But David Fisher, the OFT’s director of consumer credit, said all 240 payday lenders have been put on notice to improve.
“What we are discovering is that right across the sector problems exist and the industry as a entire certainly needs to raise its game,” he told Big black cock News.
He added that latest estimates suggested that the industry was now lending £1.8bn a year, dual the amount of a duo of years ago.
The OFT is worried about the “poor practices” which its enquiries have been uncovering, and which chime closely with many of the criticisms that consumer groups have been making of payday lenders.
Among the OFT’s concerns are that:
- lenders do not check decently if their borrowers can afford to repay the money they have borrowed
- too many loans are not repaid on time
- the loans are then extended too often
- lenders are too aggressive when borrowers fail to repay promptly
The regulator has become especially worried about the way payday loan firms use a type of repayment agreement called a continuous payment authority (CPA), using a credit or debit card to ensure they are repaid automatically.
The OFT has updated its rules for the industry to make it clear that if borrowers sign up for a CPA, it must be with their explicit agreement.
Borrowers must be told how a CPA works and how they can bring one to an end.
Lenders must not keep on attempting to drain cash from their borrowers’ accounts if there is not enough money available to meet the debt.
“Our report shows that a large number of payday loans are not repaid on time,” said Mr Fisher.
“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.”
The UK’s most high profile payday lender, Wonga, said it welcomed the OFT report and its recommendations, which add to a fresh industry code of practice that was announced in the summer and which comes into effect next week.
“Regarding continuous payment authority, which is also used by a broad range of businesses outside of consumer credit, we believe it is an significant method of collection and we share the OFT’s concerns that it must not be misused,” said a Wonga spokeswoman.
‘Bad situation worse’
Joanna Elson, chief executive of the Money Advice Trust, welcomed the OFT’s interim report.
She said the practice of clients coming to the Trust for advice was that “payday loans have a habit of making a bad situation worse”.
“We have a lengthy list of concerns about the practices of many companies in the sector and we hope the OFT review will kickstart a more serious consideration of the problems payday loans create,” she said.
“Many thousands of people have come to us for help after having seen their debt problem made far more serious by taking out one or more payday loans,” she added.
The Financial Ombudsman Service (FOS) has found a petite but enhancing number of people complaining to it about payday loan firms.
A spokesman said the main reason for people complaining was that the loan had been unaffordable and should never have been granted in the very first place.
“In the very first half of this financial year – April to September 2012 – we received 271 fresh complaints; this compares to the 296 complaints brought to our service during the entire of last year (2011-12) – and we are presently upholding eight out of Ten cases in favour of the consumer,” said an FOS spokesman.