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.
- 1 British tourists 'murdered' in Thailand: Pair's bloodied bodies found naked on Koh Tao beach
- 2 Vivienne Westwood says 'Yes' to Scottish Independence by declaring: 'I hate England'
- 3 Welcome to Cameroon, where drinking Baileys can lead to imprisonment
- 4 Lego breaks out of the toy box and heads for the gallery
- 5 Vogue under fire for 'Big Booty' article
Daniele Watts: Django Unchained actress detained by Los Angeles police after being mistaken for a prostitute
The political class is doing what Hitler couldn’t – destroying Britain
Scottish independence: Nationalist leader Jim Sillars threatens pro-union companies with 'day of reckoning' after independence
Scottish independence: Yes campaign feels the heat as Alex Salmond's NHS claims come under furious attack
£23m Birmingham cycle scheme is attacked by Tory councillor for not catering to the elderly
Salmond accused of laughing off national debt with ‘what are they going to do: invade?’ joke
iJobs Money & Business
£280 - £320 per day: Ashdown Group: The Ashdown Group have been engaged by a l...
£400 - £450 Per Day: Clearwater People Solutions Ltd: **URGENT CONTRACT ROLE**...
£35000 - £38000 per annum + Benefits: Ashdown Group: Training Coordinator / Pl...
Data Governance Manager (Solvency II) – Contract – Up to £450 daily rate, 6 month (may go Permanent)
£400 - £450 Per Day: Clearwater People Solutions Ltd: We are currently looking...
Day In a Page
A first-floor flat with two bedrooms, a spacious reception room and communal grounds in a leafy part of London
A three-bedroom flat with a spacious rootop terrace and balcony, accessed from a private gated courtyard
A Grade II-listed pile with six bedrooms, stables and 39 acres of grounds in Standlake
A two-bedroom flat with boutique hotel-style interiors, close to the foodie haunt of West End Lane
A two-bedroom flat in a beautiful old vicarage, with many original features, close to the city centre
A three-bedroom 16th-century home with an aga kitchen, private gardens and heated outdoor pool, in Hadleigh
A three-bedrom home in sought-after Queen's Gate Mews, with Italian marble-finished bathrooms
Surrounded by glorious countryside in the village of Udimore, sits this impressive four-kiln oast and barn conversion
A five-bedroom house in the picturesque village of Kettlewell, north Yorkshire
An 18th-century former coaching inn with original staircase, open fireplaces and beams throughout
A Grade II-listed Georgian town house with three bedrooms and a south-facing courtyard, near Arundel Castle
Feel on top of the world at this über chic penthouse on the 37th floor of one of Europe’s tallest blocks.
A Grade II-listed Victorian villa with six bedrooms and two further cottages, all with spectacular sea views
A grade II-listed, Georgian cottage with mature 50ft garden, perfect for summer entertaining
A magnificent Georgian pile with turrets, seven bedrooms, a heated pool and four acres of gardens
Fairoak Farm has five bedroom suites, gym, outdoor swimming pool and golf course
Chic two-bedroom river-fronted flat with a private lift that delivers you directly to your home
A spectacular seven-bedroom Tudor pile, once owned by Henry VIII, with 18 acres of land
A seven-bedroom Georgian property previously used as a picturesque wedding venue
A split-level flat in a church conversion with two en suite bedrooms and 1,200sq ft of living space
A three-bedroom bungalow situated behind an impressive stone wall, £645,000
Windsor Castle overlooks this three-bedroom Victorian cottage located on one of Windsor's smartest roads
Chapel House is a former vicarage with nine bedrooms in the beautiful Upper Wye Valley
A five-bedroom B&B and separate owner's accomodation with potential for conversion
Enjoy summer by the Thames in this two double-bedroom converted warehouse in Rotherhithe village
A one-bedroom, luxury apartment with private gym and concierge service in Moorgate
A four-bedroom house in Hermitage Gardens with three reception rooms and landscaped gardens
A seven-bedroom Grade II-listed property with a separate self-contained apartment
A five-bedroom Victorian house with three reception rooms and galleried landing, £695,000
A six-bedroom farmhouse with five acres of land in a former cloth-making village
A secluded seven-bedroom detached house with large private garden, £490,000
A three-bedroom cottage overlooking Sarratt village green with open fires and solid oak floors
A three-bedroom maisonette flat in a Grade I-listed, Georgian townhouse in a sought-after location
A one-bedroom apartment located within a private gated development, north of Turnham Green
Look forward to a brighter future at two-bedroom Sunny Cottages, ideal for Londoners looking to downsize
A three-bedroom red-brick cottage with outbuildings and pretty gardens, £200,000
This three-bedroom flat within a former textile factory spans the corner of the fourth floor and has a balcony