Industry responds to OFT's payday lender crackdown

Following the announcement that the OFT gives payday lenders 12 weeks to change their practice or risk losing their licenses, the industry has responded.

Related topics:  Specialist Lending
Amy Loddington
6th March 2013
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Not only has the OFT issued the ultimatum to the 50 lenders - who make up 90% of the payday lending market - they have also announced a proposal to refer the payday loan sector to the Competition Commission as a result of the 'deep-rooted problems in how lenders compete with each other'.

Which? executive director Richard Lloyd said, in relation to the Competition Commission proposal:

"We're pleased the Government and regulators are planning tough action to crack down on irresponsible lending, especially on high-cost lenders that exploit consumers struggling to get by in tough economic times.

"Which? research has repeatedly found poor affordability checks and excessive charges that push consumers into a vicious cycle of debt. So a referral of the payday market to the Competition Commission to consider its future is a good move, but there must also be no delay in taking immediate action to protect people in difficulty today.

"We want all the regulators involved to immediately crack down on payday lenders who flout the rules and use their new powers to take strong, proactive action to clean up the whole of the consumer credit market.”

Joanna Elson, Chief Executive of the Money Advice Trust, said:

"This is an important report and we welcome the OFT's attention to the payday loans industry.

"The rapid emergence of payday lending has altered the landscape of our high streets, TV adverts and even the odd football team. Undoubtedly this growth indicates that there is a market for short term, high interest credit products.

"However our National Debtline advisers have spoken to many people who have taken out a payday loan when it was clearly not the right option for them and where it has made a bad situation worse. This report makes clear that too many of these people have been victim to persistent bad practice from some lenders.

"It is now vital that the industry is subject to on-going close monitoring and that lenders adhere to clear and strict codes of conduct. We hope this review is a kick start to that process.

Michael Ossei, personal finance expert at uSwitch.com, says:

"Based on its findings, the OFT had little choice but to read payday lenders the riot act. Today's recommendations show that the OFT and the Government mean business. Clamping down on irresponsible lending and doing more to protect vulnerable consumers lie at the heart of today's recommendations.

"While payday loans should only ever be used as a last resort, the temptation often proves too much for people in need of cash quickly. For too long payday loan companies have taken advantage of this and have focused their marketing activity on capturing a vulnerable audience - whether through adverts on daytime TV or, more recently, direct text messaging. It's great that the Government is finally reacting to this, but for many consumers the action comes all too late.

"What we've seen today is encouraging, but it is our hope that an investigation by the Competition Commission, and the move by the FCA to regulate consumer credit from April 2014, will mean the sector will be brought firmly in line with other lending practices."

Sylvia Waycot, Editor of Moneyfacts.co.uk, said:
 

“The new crackdown on how payday lenders are allowed to advertise is welcome news. However, we still have to wait an entire year before the Financial Conduct Authority takes over complete regulation.         

“Until then, those in financial difficulty will be dealing with what is largely a self regulating industry that conducts business via a set of principles rather than strict rules.   

“If these principles were working so well, we wouldn’t have seen the new code of conduct launched in November or the latest twist regarding advertising.       

“Principles after all, are only guidelines. For consumers seeking loans to feel secure, they need to know the lender they are dealing with abides by firm rules and not just promises.”

Russell Hamblin-Boone, Chief Executive of the Consumer Finance Association, said: 


“This is the end of a year long review and we will take time to review the issues that have been raised. We recognise there are concerns about the industry however these reports are a snapshot in time and work is already underway. Since the industry was investigated last year we have introduced a series of safeguards to ensure that our members are dealing with customers responsibly. From credit checking all new applications, to limiting loan rollovers and providing help for those who get into financial difficulty, we have raised standards all the way through the loan process. We go far beyond the legal requirements but if the Government wants us to do more, we will consider its proposals.”
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