The Office of Fair Trading (OFT) has ordered the UK's most prominent payday lenders to change their ways within the next 12 weeks or risk having t…
The Office of Fair Trading (OFT) has ordered the UK's most prominent payday lenders to change their ways within the next 12 weeks or risk having their licenses revoked.
It has taken this tough stance after evidence started to mount up that suggested the firms had become increasingly irresponsible in their lending policies. The OFT has also announced that it plans to refer the payday loan industry to the Competition Commission, subject to a consultation.
Leaders at the regulatory body said the radical changes will initially affect the 50 largest payday loan companies in the UK and these account for 90 per cent of the overall market.
OFT chief executive Clive Maxwell said he had discovered "fundamental flaws" in the way these organisations are operating and it is high time that something was done about it. He stated a lot of lenders are sanctioning high-interest loans to people who have already demonstrated they are incapable of paying the money back.
"Payday lenders are earning up to half their revenue not from one-off loans, but from rolled over or re-financed deals where unexpected costs can rapidly mount up," Mr Maxwell remarked.
Many households that have taken out a payday loan have spiralled into debt and the Financial Ombudsman Service recently revealed the organisation has noticed a sharp upturn in the number of people who are seeking debt management guidance after borrowing money from a less than reputable source. Indeed, the group revealed it is taking on up to 50 new cases of this nature each month.
The OFT's announcement has been welcomed by leaders at comparison website uSwitch.com, who said that too many people have been sucked in by payday lenders through TV adverts and SMS marketing drives.
"Today's recommendations show that the OFT and the government mean business," commented Michael Ossei, personal finance expert at uSwitch.com, who feels the OFT had no choice but to read the payday loan market the riot act.
"Clamping down on irresponsible lending and doing more to protect vulnerable consumers lie at the heart of today's recommendations."
By Joe White