November 20, 2012
The OFT launches investigations into several payday lenders for “aggressive debt collection practices” and warns others that they risk enforcement action if standards do not improve.
The Office of Fair Trading said it found evidence of aggressive tactics used by some lenders that were “so serious” that it needed to take action.
He also said he would write to the 240 payday lenders to stress his concerns about bad practices in the industry. The concerns revolved around:
- the adequacy of controls on whether loans will be affordable for borrowers
- the proportion of loans that are not repaid on time
- how often lenders ‘refinance’ or refinance loans
- the lack of tolerance shown by some lenders when borrowers encounter financial difficulties
- debt collection practices
In evidence forwarded to the OFT, the Consumer Credit Counseling Service (CCCS) said the number of people with payday loans who contacted them for advice increased six-fold between January 2009. and December 2011. In 2011, the service helped 17,414 people with 40,053 separate payday loans – about 9 percent of the total.
You keep jumping over to pay, pay, pay – Andy, payday loan borrower
He also said he saw evidence of “unfair treatment” of consumers through a range of practices, including excessive fees, misrepresentation of legal powers in debt collection, communication that constitutes harassment and refusal to deal. with third parties (such as CCCS).
A payday loan user, who asked to remain anonymous and ultimately took out 80 loans, told Channel 4 News that after he was able to repay a loan, he turned to another business.
“I was clear that I owed someone else money,” he said. “They didn’t seem interested in this. They wanted to lend me money. It was not difficult at all, it was quite easy.
Another payday consumer, Andy, said the majority of his paycheck would be spent on loans.
“You needed the money to live, to keep a roof over your head for food and fuel. So you have to get more loans to live for that month and then you jump again. You keep jumping over to pay, pay, pay – until you put your hands up and say “okay, you have to stop.”
The OFT has investigated 50 payday lenders, representing the majority of payday lending, and said it expects to warn all of them that enforcement action will be taken if they do not improve practices and specific procedures. These lenders will be required to provide independent audits to show that they are complying with legal obligations and expected standards.
David Fisher, OFT’s director of consumer credit, said: “We have found evidence that some payday lenders are acting so badly that we have already opened formal investigations against them. It is also clear that, across the industry, lenders need to improve their business practices or risk enforcement measures.
“Our report shows that a large number of payday loans are not repaid on time. I urge anyone considering taking out a payday loan to make sure they fully understand the costs involved so that they can be sure they can afford to pay it off.
In addition to the investigations, the OFT also examined 686 consumer complaints, conducted a mystery shopper exercise with 156 online and high street lenders, and received 1,036 responses to a survey of businesses, trade associations. and consumer organizations. A full report will be published by the OFT in the new year.
Russell Hamblin-Boone, chief executive of the Consumer Finance Association, which represents short-term lenders, told Channel 4 News that the organization is working with the government and credit bureaus to improve the credit checking system.
However, he added that there must be “responsible borrowing” as well as “responsible lending”, and said that there is “no business sense” in lending to someone who will not pay you back. not.
Below, watch an excerpt from her interview with business correspondent Sarah Smith, ahead of tonight’s Channel 4 News show at 7:00 p.m. If you have something to say about payday loans, tweet @ Channel4News.