Office of Fair Trading warns payday lenders to clean up their act or face closure - Loans & Credit - Money - The Independent

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.

Life and Style
tech
Arts and Entertainment
Robin Thicke's video for 'Blurred Lines' has been criticised for condoning rape
music
News
Paper trail: the wedding photograph found in the rubble after 9/11 – it took Elizabeth Keefe 13 years to find the people in it
newsWho are the people in this photo? It took Elizabeth Stringer Keefe 13 years to find out
Arts and Entertainment
Evil eye: Douglas Adams in 'mad genius' pose
booksNew biography sheds light on comic genius of Douglas Adams
PROMOTED VIDEO
Sport
FootballFull debuts don't come much more stylish than those on show here
Arts and Entertainment
Fringe show: 'Cilla', with Sheridan Smith in the title role and Aneurin Barnard as her future husband Bobby Willis
tvEllen E Jones on ITV's 'Cilla'
News
i100
Sport
Tim Wiese
sport
Life and Style
Kim Kardashian drawn backlash over her sexy swimsuit selfie, called 'disgusting' and 'nasty'
fashionCritics say magazine only pays attention to fashion trends among rich, white women
Arts and Entertainment
TVShows like Agents of S.H.I.E.L.D are little more than marketing tools
Arts and Entertainment
Hit the roof: hot-tub cinema east London
architectureFrom pools to football pitches, rooftop living is looking up
Travel
travel
Finacial products from our partners
Property search
Latest stories from i100
Have you tried new the Independent Digital Edition apps?
Independent Dating
and  

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

ES Rentals

    iJobs Job Widget
    iJobs Money & Business

    Payroll & Accounts Assistant

    £20 - 24k + Benefits: Guru Careers: This is a great opportunity for an enthusi...

    SQL Developer - Watford/NW London - £280 - £320 p/d - 6 months

    £280 - £320 per day: Ashdown Group: The Ashdown Group have been engaged by a l...

    Senior BA - Insurance **URGENT**

    £400 - £450 Per Day: Clearwater People Solutions Ltd: **URGENT CONTRACT ROLE**...

    Training Coordinator / Resource Planner - City, London

    £35000 - £38000 per annum + Benefits: Ashdown Group: Training Coordinator / Pl...

    Day In a Page

    Mystery of the Ground Zero wedding photo

    A shot in the dark

    Mystery of the wedding photo from Ground Zero
    His life, the universe and everything

    His life, the universe and everything

    New biography sheds light on comic genius of Douglas Adams
    Save us from small screen superheroes

    Save us from small screen superheroes

    Shows like Agents of S.H.I.E.L.D are little more than marketing tools
    Reach for the skies

    Reach for the skies

    From pools to football pitches, rooftop living is looking up
    These are the 12 best hotel spas in the UK

    12 best hotel spas in the UK

    Some hotels go all out on facilities; others stand out for the sheer quality of treatments
    These Iranian-controlled Shia militias used to specialise in killing American soldiers. Now they are fighting Isis, backed up by US airstrikes

    Widespread fear of Isis is producing strange bedfellows

    Iranian-controlled Shia militias that used to kill American soldiers are now fighting Isis, helped by US airstrikes
    Topshop goes part Athena poster, part last spring Prada

    Topshop goes part Athena poster, part last spring Prada

    Shoppers don't come to Topshop for the unique
    How to make a Lego masterpiece

    How to make a Lego masterpiece

    Toy breaks out of the nursery and heads for the gallery
    Meet the ‘Endies’ – city dwellers who are too poor to have fun

    Meet the ‘Endies’ – city dwellers who are too poor to have fun

    Urbanites are cursed with an acronym pointing to Employed but No Disposable Income or Savings
    Paisley’s decision to make peace with IRA enemies might remind the Arabs of Sadat

    Ian Paisley’s decision to make peace with his IRA enemies

    His Save Ulster from Sodomy campaign would surely have been supported by many a Sunni imam
    'She was a singer, a superstar, an addict, but to me, her mother, she is simply Amy'

    'She was a singer, a superstar, an addict, but to me, her mother, she is simply Amy'

    Exclusive extract from Janis Winehouse's poignant new memoir
    Is this the role to win Cumberbatch an Oscar?

    Is this the role to win Cumberbatch an Oscar?

    The Imitation Game, film review
    England and Roy Hodgson take a joint step towards redemption in Basel

    England and Hodgson take a joint step towards redemption

    Welbeck double puts England on the road to Euro 2016
    Relatives fight over Vivian Maier’s rare photos

    Relatives fight over Vivian Maier’s rare photos

    Pictures removed from public view as courts decide ownership
    ‘Fashion has to be fun. It’s a big business, not a cure for cancer’

    ‘Fashion has to be fun. It’s a big business, not a cure for cancer’

    Donatella Versace at New York Fashion Week