Payday loan firms that are flouting the law

Unscrupulous online lenders are acting outside the law, our investigators found.

An investigation of online payday lending sites conducted last weekend on behalf of The Independent revealed that more than two-thirds of them have no valid consumer credit licence.

Without a valid licence, the sites are breaking the law. The shocking statistics are a fresh signal that the sector is spiralling out of control as more and more firms pile in with the hope of making a quick buck out of struggling people.

The Office of Fair Trading is currently investigating the high-cost credit industry to look at accusations of irresponsible lending and pushy marketing. In recent weeks it has called in leading figures from the payday lending and pawnbroking industries to set out the standards it expects them to keep.

But the regulators can do little about the shadowy online outfits that are often a front for foreign firms not looking to lend themselves but to use websites to capture potential prospects whose details they can then flog on to legal lenders.

Of the top six ranked sites in Google.co.uk for "payday loans" last weekend, just one was a legitimate lender that included a current consumer credit licence. Two didn't even bother to include any licence details, while the other three – including the top-ranked site – all included the same number, giving the appearance of legitimacy. But when our investigators checked the number at the OFT's public register of licenced lenders, none of the websites were included as trading names of the licence holder. That turned out to be the American firm T3leads. It's not a firm that you'll have heard of, but it does appear to be inadvertantly responsible for many of the UK's payday loan websites. It calls itself "the premier internet destination for quality leads". In other words, it uses the sites to collect your information so it can sell it on to others.

The firm told The Independent: "We have been made aware that some websites seem to be using unlawful means, including copying website content or attempting to trade under our license. We do our outmost to protect the consumers and prevent non-compliance by immediately blocking, reporting and removing any website that is either not compliant or that we believe is misleading in its wording or behaviour.

"Our implemented processes guarantee the removal of incriminated affiliated websites within 10 days. This is far shorter than any of our competitors.

"We are currently setting up meetings with the OFT to attempt addressing the issue. However, until such time as search engines better their controls, we, as users, are not in a position to do much more than reacting to infractions, rather than preventing them. We remain vigilant and invite the consumers to report to us any website they see trading under our license that is not affiliated to us or that has behaved improperly.” 

If anyone really does feel the need for expensive emergency cash, then using a legitimate firm makes more sense. The OFT said: "Lenders should not take leads from unlicensed businesses, including lead-generating websites that proffer payday loans."

The regulator is seeking stronger powers to shut down rogue firms, but any found breaking the law can also be reported to the police or fraud authorities.

But taking action against the lawbreaking payday sites looks to be pretty ineffective as the companies behind them appear to quickly churn them. With so many of the top-ranked appearing to be simply lead-generators, many of last week's top 50 have already disappeared, replaced by others with no credit licence.

And so it will continue until we get stronger laws to crack down on the companies behind the scenes, pocketing huge profits.

Meanwhile a Which? report published this week revealed that almost half the people who turn to payday lenders can't afford to pay the loan back. Which? executive director Richard Lloyd said: "Payday loans are leaving many people caught in a spiral of debt and taking out more loans just to get by."

That's when they're hit by excessive penalty charges and roll over fees.

'The Office of Fair Trading must do more to clamp down on irresponsible lending by introducing tighter rules for payday lenders. Better affordability assessments and clearer charges would be the first steps to clean up the industry and better protect consumers.'

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