Office of Fair Trading warns payday lenders to clean up their act or face closure

 

Payday lenders face being shut down if they don’t clean up their act, the Office of Fair Trading (OFT) has warned.

In a damning statement the OFT said that most of the 50 major payday lenders it has scrutinised since launching an investigation earlier this year failed to comply with legal obligations and expected standards.

The OFT has told the 50 biggest firms that they may face enforcement action, which could mean putting them out of business. The Independent has been among those campaigning to crack down on exploitative lenders. The regulator has also warned the UK's 240 payday firms about growing evidence of poor practices in the sector, which sees some firms charge an annual percentage rate of more than 4,000 per cent.

Specifically the OFT accused lenders of misusing continuous payment authorities (CPA), which give lenders the power to snatch money from people's bank accounts; many do so if borrowers are late with payments. Such unscrupulous actions leave many vulnerable people unable to pay for food, rent or other basic necessities.

"Our guidance makes it absolutely clear to lenders what we expect from them when using continuous payment authority to recover debts and that we will not accept its misuse," David Fisher, of the OFT, said. One worker at a leading payday loan firm told The Independent that CPAs are set up automatically to keep trying to withdraw cash from borrower's accounts the day after they default on payment. "If a lender has details of different debit cards on file, they will try them all, which often hits the customer's credit score," the insider, who didn't want to be named, said.

The OFT also accused payday firms of failing to check whether borrowers can afford to repay the loans. Even if a lender does check affordability when people first apply for a loan, many don't then bother when a customer defaults, preferring simply to add extra charges and fees. But borrowers often default because they've lost their job or their finances are spiralling out of control. At such time they need help, not encouragement to take out further debt. An affordability check at that stage would highlight a borrower's problems.

Mr Fisher said: "We have uncovered evidence that some payday lenders are acting in ways that are so serious that we have already opened formal investigations against them. It is also clear that, across the sector, lenders need to improve their business practices or risk enforcement action."

The regulator criticised payday lenders for the high number of times they roll over loans, boosting their profits while hitting vulnerable people with excessive fees and interest charges.

The leading firms have agreed a new code of conduct where loans will not be rolled over more than four times, but lenders regularly get around this, according to the insider. "Lenders simply make the borrower pay a small amount off the debt, so they can then claim that it's a new loan," the insider said.

The OFT said its investigation into the sector is continuing and that it will publish its full findings in the new year. It refused to name any of the firms under investigation.

Abusive tweets to Mp 'traced to Wonga office'

Wonga, the online loans company, has admitted one of its junior employees may have been behind anonymous Twitter attacks on Stella Creasy, the MP and anti-payday loans campaigner.

Ms Creasy demanded an apology from Wonga last night after the Twitter account was reportedly traced to someone working within the firm's London office. The tweets had called Ms Creasy "mental", "nuts" and a "self-serving egomaniac".

The Walthamstow Labour MP has been a critic of payday loan companies, which can charge low-income customers annual interest rates of more than 4,000 per cent. Labour has called for the Lords to vote for an amendment to the Financial Services Bill to cap charges.

Finacial products from our partners
Property search
Latest stories from i100
Have you tried new the Independent Digital Edition apps?
SPONSORED FEATURES
Independent Dating
and  

By clicking 'Search' you
are agreeing to our
Terms of Use.

ES Rentals

    iJobs Job Widget
    iJobs Money & Business

    Guru Careers: Tax Manager / Accountant

    £35 - £50k DOE: Guru Careers: A Tax Manager / Accountant (ACA / CA / CTA) is n...

    Ashdown Group: Contracts Executive - City of London

    £35000 - £37000 per annum + benefits: Ashdown Group: Contracts Executive - Cit...

    SThree: Trainee Recruitment Consultant

    £20000 - £25000 per annum + OTE £45K: SThree: SThree Group have been well esta...

    Recruitment Genius: Call Centre Debt Collector - Multiple Roles

    £21000 per annum: Recruitment Genius: This is an exciting opportunity to join ...

    Day In a Page

    Giants Club: After wholesale butchery of Idi Amin's regime, Uganda’s giants flourish once again

    Uganda's giants are flourishing once again

    After the wholesale butchery of Idi Amin's regime, elephant populations are finally recovering
    The London: After 350 years, the riddle of Britain's exploding fleet is finally solved

    After 350 years, the riddle of Britain's exploding fleet is finally solved

    Archaeologists will recover a crucial item from the wreck of the London which could help shed more light on what happened in the vessel's final seconds
    Airbus has patented a jet that could fly from London to New York in one hour

    Airbus has patented a jet that could fly from London to New York in one hour

    The invention involves turbojets and ramjets - a type of jet engine - and a rocket motor
    Tate Sensorium: New exhibition at Tate Britain invites art lovers to taste, smell and hear art

    Tate Sensorium

    New exhibition at Tate Britain invites art lovers to taste, smell and hear art
    10 best sun creams for kids

    10 best sun creams for kids

    Protect delicate and sensitive skin with products specially formulated for little ones
    Ashes 2015: Nice guy Steven Finn is making up for lost time – and quickly

    Nice guy Finn is making up for lost time – and quickly

    He was man-of-the-match in the third Test following his recall to the England side
    Ashes 2015: Remember Ashton Agar? The No 11 that nearly toppled England

    Remember Ashton Agar?

    The No 11 that nearly toppled England
    Turkey-Kurdish conflict: Obama's deal with Ankara is a betrayal of Syrian Kurds and may not even weaken Isis

    US betrayal of old ally brings limited reward

    Since the accord, the Turks have only waged war on Kurds while no US bomber has used Incirlik airbase, says Patrick Cockburn
    VIPs gather for opening of second Suez Canal - but doubts linger over security

    'A gift from Egypt to the rest of the world'

    VIPs gather for opening of second Suez Canal - but is it really needed?
    Jeremy Corbyn dresses abysmally. That's a great thing because it's genuine

    Jeremy Corbyn dresses abysmally. That's a great thing because it's genuine

    Fashion editor, Alexander Fury, applauds a man who clearly has more important things on his mind
    The male menopause and intimations of mortality

    Aches, pains and an inkling of mortality

    So the male menopause is real, they say, but what would the Victorians, 'old' at 30, think of that, asks DJ Taylor
    Man Booker Prize 2015: Anna Smaill - How can I possibly be on the list with these writers I have idolised?

    'How can I possibly be on the list with these writers I have idolised?'

    Man Booker Prize nominee Anna Smaill on the rise of Kiwi lit
    Bettany Hughes interview: The historian on how Socrates would have solved Greece's problems

    Bettany Hughes interview

    The historian on how Socrates would have solved Greece's problems
    Art of the state: Pyongyang propaganda posters to be exhibited in China

    Art of the state

    Pyongyang propaganda posters to be exhibited in China
    Mildreds and Vanilla Black have given vegetarian food a makeover in new cookbooks

    Vegetarian food gets a makeover

    Long-time vegetarian Holly Williams tries to recreate some of the inventive recipes in Mildreds and Vanilla Black's new cookbooks