Shackling the loan sharks: Payday hunters become the hunted
Tough new laws aim to stop short-term lenders taking advantage of vulnerable people in financial need
The payday hunters have become the hunted. After months of examples of customers being left with their finances wrecked and their futures at risk, and an official year-long investigation, short-term lenders who hit customers with high-cost loans should come under tough new regulations, with errant firms at risk of being shut down.
The results of a year-long investigation into the sector is expected to accuse many lenders of failing to comply with the law, with the Government revealing plans to force payday lenders to clean up their advertising. They will be among a range of hardline measures aimed at stopping unscrupulous lenders taking advantage of vulnerable people in financial need.
The Office of Fair Trading (OFT) is expected to demand that high-cost lenders stop rolling over loans, leaving hard-up borrowers in a disastrous debt cycle – and it is likely to warn rogue lenders they face instant closure under new hardline rules.
The watchdog was given new powers on 19 February which allow it to immediately suspend the consumer credit licence of companies to protect consumers. It will act if it believes businesses are using practices that are deceitful, oppressive or unfair.
It is also believed to be planning to force lenders to be more stringent about checking whether people can actually afford to borrow money – and it will tell lenders to stop strong-arm tactics to recover debts, ordering them to deal reasonably with people who fail to repay loans on time.
The OFT is also likely to reiterate its warning about the misuse of continuous payment authorities. These give lenders the power to take money from directly from people’s bank accounts to pay back their loans, but such actions can leave vulnerable people unable to pay for basic necessities.
The watchdog has already warned the UK’s 240 payday firms about the growing evidence of poor practices among the short-term high-cost lenders.
Additionally, lenders could be made to include “wealth warnings” on adverts, limit the number of times they advertise and ensure their APR is displayed under new plans to be announced on Wednesday by Consumer minister Jo Swinson and Treasury minister Sajid Javid.
Ms Swinson said: “We are clear that no-one should be lured into using payday lending, and people should have the tools to make informed decisions about the help on offer. When consumers are in financial need, we are absolutely committed to making sure they are not taken advantage of.”
The Government will also publish an independent report it commissioned from the University of Bristol on the impacts of a possible cap on the total cost of credit. The report will show there are serious problems in the market which are harming consumers, although it has stopped short of calling for a cap on the cost of credit.
The Consumer minister will be calling in representatives of the industry to warn them about their future behaviour. In recent years lenders have been found targeting vulnerable groups, such as students or the unemployed, who are unable to afford to take on high-cost credit.
Mumsnet banned irresponsible payday lenders from advertising on its website last year and several university campuses have made similar moves, following a campaign by the National Union of Students.
The responsibility for regulation of consumer credit – including the payday loan sector – will move from the OFT and come under the jurisdiction of the new regulator Financial Conduct Authority (FCA) from 2014.
The Government promised the new regulator would be given new powers and sharp teeth to enforce them, while the regulator has already committed to prioritise payday regulation and advertising problems immediately.
The FCA’s rules will be binding, and if broken it will have strong enforcement powers including fines and the ability to get consumers their money back. That the Bristol report has fallen short of calling for a cap on the total cost of credit will disappoint those fighting rogue payday loans, such as the End Legal Loan Sharks campaign led by Labour MP Stella Creasy. Instead it says that a cap on credit is not the right answer at this time.
However the FCA will have powers to have another look at this and enforce a cap if they think it’s right.
Labour MP Yvonne Fovargue, who has campaigned on the subject, said there was still more work to be done. “We also need the creation of a database of real time credit information to combat the spiralling debt faced by many consumers when multiple loans are provided to customers, by different companies and in a short space of time,” she said.
‘The system fails to see some reach their wit’s end with just a £50 debt’
Graham Brewis began his career as an assistant branch manager at the Northern Rock. But drink and debt problems left him homeless. He battled back to “a normal life” but discovered that there was very little help for similar people with severe debt problems and addictions.
“I found out that the system failed to recognise that someone may be at their wit’s end with just a £50 debt,” Graham says. “A spell working for national drug charity Addaction brought me face-to-face with people with similar issues that I had dealt with. It is clearly madness to expect anyone to be successful in recovery when their finances are in a mess.”
His experience led him to set up Clean Slate Financial Wellbeing Services in 2011 in the north-east.
Dear dough: The big lenders
Typical APR 1734%
Owned by US firm CashEuroNet UK, which also owns Quick-pay-day.co.uk. In 2011, Which? reported Quick Quid to the Information Commissioner’s Office over the unauthorised sale of personal details.
Typical APR 4214%
Wonga has made six million loans since 2007 and spent £16m on advertising in 2011 to boost profits to £46m. It sponsors Blackpool and Hearts and will soon back Newcastle United.
Money Shop/Payday Express
Typical APR 2671%
Operates 350 Money Shop stores that link to Payday Express online. The company is owned by Dollar, which plans a 1200-branch network.
Typical APR 2610%
It was the biggest online payday lender when it was bought by the US payday giant Dollar Financial for a reported $195m in 2011.
Simon Read: Frozen in time - the expat British pensioners who deserve a better deal
Weekly Money: Round-up of the personal finance stories you may have missed 19-23 January
Bargain Hunter: From The Outsider to 1984, catch a cut-price classic, read it in the rye
Donald MacInnes: My wasted hours in the retail deserts of Dixons-Carphone
Money Insider: Smart alternatives to the pensioner bond
- 1 The truth about 'girl things': Three cheers for Heather Watson's honesty
- 2 Man who held up 'hire me' sign at Waterloo station returns a year later with 'I'm hiring' sign
- 5 Men behaving badly: Urinating while standing, 'manspreading' and the gendering of selfishness
Nigel Farage: NHS might have to be replaced by private health insurance
'We would evict Queen from Buckingham Palace and allocate her council house,' say Greens
French court convicts three over homophobic tweets, in case hailed as a 'significant victory' by LGBT rights campaigners
British Muslim school children suffering a backlash of abuse following Paris attacks
George Galloway condemns 'racist, Islamophobic, hypocritical rag' Charlie Hebdo at freedom of speech rally
Islamic history is full of free thinkers - but recent attempts to suppress critical thought are verging on the absurd
iJobs Money & Business
Negotiable: Recruitment Genius: A Tax Assistant is required to join a leading ...
£16000 - £25000 per annum: Recruitment Genius: This is an exciting opportunity...
£45000 - £47000 per annum + bonus + benefits: Ashdown Group: Java Developer / ...
£35000 - £38000 per annum + Benefits: Ashdown Group: Marketing Manager - Marke...
Day In a Page
Hibernate during winter and make your living during the summer at this busy guesthouse with panoramic sea views, in the village of Lynton
A four-bedroom penthouse next to the Tate with direct views of St Paul's from two floors of luxurious living space
A four-bedroom detached home surrounded by spacious gardens and woodland, close to New Pudsey
An 18th-century, three-bedroom home near Langstone Harbour built from ships beams with vaulted ceilings and wood burning stoves
A five-bedroom semi-detached home with a mix of period and modern features in a popular and convenient location
This five-bedroom red-brick beauty overlooks the village green and sits in just under two acres of land
A three-bedroom villa with self-contained flat, minutes from Lake Windermere
A deceptively spacious, beautifully presented Georgian home with 3000sq ft of living space and five reception rooms
A five-bedroom Victorian home with four receptions, superb gardens and paddock in Pembury
An eight-bedroom house on the south side of the The Green with cinema, wine cellars and summer house
This 17th century beauty is full of rustic cosiness, while the detached home office means you can also run a business
Four exclusive apartments in a Grade II-listed former medical school with 2,275 sq ft of living space and 18ft ceilings
A five-bedroom terraced house on the popular Peterborough Estate, ideally located for both Eel Brook Common and South Park
A state-of-the-art farm-building conversion on the former Cliveden Estate, with 11,420sq ft of internal space, cinema and wine cellar
A three-bedroom, 15th-century cottage with original features in the picturesque village of Sissinghurst
A six-bedroom terraced house with large south-facing roof terrace, cinema room and wine cellar
A new seven-bedroom home built in Queen Anne-style with swimming pool and parkland views in Mortimer
A listed, four-bedroom farmhouse in the rural hamlet of Rushall with detached barn, four acres of gardens and paddocks
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