The OFT’s review of payday loan companies uncovered evidence of widespread irresponsible lending. The OFT’s David Fisher explains why it has given 50 payday lenders 12 weeks to change their business practices.
We’re not talking about a few rogue firms; far from it. There are serious problems across the market, with lenders large and small, from the advertising of payday loans to the collection of debts. This is unacceptable, which is why we are requiring all payday lenders to improve the way they do business.
12 weeks to clean up their act
We are paying particular attention to 50 of the largest payday lenders – accounting for over 90% of the market. Each of these lenders will receive a detailed account of the problems we have discovered with the way they do business. They will then have 12 weeks to demonstrate to our satisfaction that they’ve tackled the problems or risk losing their licence to do business.
Lenders need to understand that the payday sector is one of our top enforcement priorities and we will use the full range of tools available to us, including the power to suspend licences where appropriate.
Problems with payday loans sector
We also found that the problems with this industry go beyond failure to comply with standards. We believe that there are fundamental problems with the way competition is working in this market, which is rooted in the incentives the companies have.
This is best illustrated by their failure to adequately assess whether prospective customers can afford to repay loans, which they are required to do before making them. Yet half their revenues come from customers who fail to repay on time; so lenders have a financial incentive to make loans to people who cannot afford to repay them on time.
That is why we propose to refer the market to the Competition Commission, which will be able to get to the heart of these matters and, if appropriate, require radical changes.
Which? Conversation provides guest spots to external contributors. This is from David Fisher, the Office of Fair Trading’s director of consumer credit. All opinions expressed here are David’s own, not necessarily those of Which?.