Two cheers for the Office of Fair Trading (OFT) today as it confirms that it has referred the payday loan sector to the Competition Commission. Better late than never.
Under-resourced and lacking the necessary powers to police the credit market, the OFT has shown itself reluctant in the past to fully get to grips with the £2bn payday loan sector.
The failures in this sector are endemic: from dodgy advertising to unfair default charges, from a lack of proper affordability assessments and inappropriate loan rollovers to a lack of competition on price. Payday lenders have effectively been left to their own devices, resulting in significant consumer harm for many hard-pressed borrowers.
That the OFT now has the bit between its teeth and is taking action is a welcome move. The regulator’s hard-hitting report published this morning lays bare the many faults of the high-cost credit market and we support its decision to get the Competition Commission involved. You can read the evidence we sent the OFT here.
The OFT refers payday lenders to Competition Commission
It’s absolutely right that the regulator clamps down on companies whose business model allows them to make a profit even when their loans are unaffordable for individual borrowers.
Too many people currently end up paying far more than expected through rollovers, additional interest and default charges. Lenders competing primarily on the availability and speed of loan approval, rather than price and affordability need to be challenged and stopped.
One payday sector trade body this morning complained that ‘no other sector has faced such intense scrutiny in such a short space of time’. And yet, I’m struggling to think of another sector that has grown so fast and left so many potentially vulnerable consumers facing unmanageable debt due to weaknesses at every stage of the lending process.
The OFT has taken a big positive step today in referring the sector to the Competition Commission. While this review takes place, the OFT must continue to take early enforcement action against any company found to be lending irresponsibly.
[UPDATE 1 JULY 2013] – Following today’s government-led payday lending summit, Which? executive director, Richard Lloyd, said:
‘With people increasingly turning to high cost credit to pay for essentials like food it’s good to see Ministers and regulators facing up to the widespread problems with payday lenders. Positive noises about tough new rules have come out of the summit but these must now be backed up with more concrete actions than we’ve seen today.
‘It’s clear the industry must not wait for new rules to come in and must clean up its act without delay. More action is also needed by the whole of the credit industry and government to come up with new ways of providing affordable credit to people that need it and can afford it.
‘We will be watching closely to make sure the promises we heard today from ministers and regulators are kept, and quickly.’