Mortgage News
OFT warns payday lenders to clean up or risk closure
The Office of Fair Trading (OFT) has told the country’s 50 leading payday lenders that they have 12 weeks to change their business practices or risk losing their licenses.
It said it had uncovered evidence of “widespread irresponsible lending” and failure to comply with the standards required of them following a compliance review of the £2bn sector.
The OFT also announced that, subject to consultation, it proposes to refer the payday lending market to the Competition Commission after it found evidence of deep-rooted problems in how lenders compete with each other.
Among the failings that the OFT identified were that lenders were failing to conduct adequate assessments of affordability before lending or before rolling over loans, and that they were failing to explain adequately how payments will be collected.
In addition, some were using aggressive debt collection practices and not treating borrowers in financial difficulty with forbearance.
The 50 leading lenders, each of which was inspected by the OFT, will have to take rapid action to address the specific concerns it identified with each of their businesses.
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They must demonstrate within 12 weeks that they are fully compliant, or risk losing their licence. Failure to cooperate with this process will trigger enforcement action, it added.
Clive Maxwell, OFT chief executive, said: “We have found fundamental problems with the way the payday market works and widespread breaches of the law and regulations, causing misery and hardship for many borrowers. 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.
“We are proposing to refer this market to the Competition Commission, which has wider powers to get to heart of the problems in this market and to identify and impose lasting solutions that protect consumers.
“Irresponsible lending is not confined to a few rogue payday lenders – it is a problem across the sector. If we do not see rapid, significant improvements by the 50 lenders we inspected they risk their licences being removed. Payday lending is a top enforcement priority for the OFT.”