In March the Office of Fair Trading announced that the 50 biggest payday lenders had 12 weeks to change their business practices. Today marks the 12-week deadline – have payday lenders improved?
Following its review of the sector over the last year, the Office of Fair Trading (OFT) began writing to payday lenders individually, outlining how to improve their lending practices. As the OFT announced here on Which? Conversation, it gave 50 payday lenders 12 weeks to improve or risk losing their licence to do business.
The deadline for the first of the lenders who received their letters is today, while others have until 29 July to show the OFT that they have cleaned up their act.
Strong new rules for payday lenders
The Financial Conduct Authority (FCA) needs to introduce strong new rules when it takes over the regulation of credit from the OFT in April next year.
The FCA needs to ensure lenders are carrying out proper affordability assessments on their applicants – including whether it’s appropriate for them to take out a loan, and if they can sustainably afford to pay it back. We also want clearer and more transparent information for prospective customers, including the consequences of missing a payment. The cost of the loan should also be displayed clearly as pounds per £100 borrowed over 30 days.
Which? Conversation commenter Colin Halton also thinks clarity is essential:
‘[Payday lenders] should be forced to make the possible, if not probable, consequences of these extortionate loans absolutely clear, so they can be understood by anyone, no matter what their background or level of understanding may be.’
Payday lenders will remain in the spotlight later this week, because on Friday a committee of MPs will be releasing their assessment of how the sector has to be regulated. I imagine their report will back our call for the FCA to send a clear message to lenders that it’s committed to cleaning up payday lending.
While the OFT must stick to its promise to revoke the licences of irresponsible lenders who refuse to improve, we also want the FCA to take even more radical action when it takes over from the OFT in April.
As well as better affordability checks and transparent information, we want the FCA to ensure that lenders don’t take advantage of people in financial difficulty. We want lenders to be prevented from levying excessive charges on borrowers in financial difficulty, and for them to do more to help struggling customers, including referring them to free, independent advice.
Do you have any experience of payday lenders? Do you have faith in the regulators to clean up the industry?