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

Quick Quid

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.

Wonga

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.

PaydayUK

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.

PROMOTED VIDEO
Arts and Entertainment
Babysitter Katie and Paul have terse words in the park
tvReview: The strength of the writing keeps viewers glued to their seats even when they are confronted with the hard-hitting scenes
News
i100
Arts and Entertainment
American singer, acclaimed actor of stage and screen, political activist and civil rights campaigner Paul Robeson (1898 - 1976), rehearses in relaxed mood at the piano.
filmSinger, actor, activist, athlete: Paul Robeson was a cultural giant. But prejudice and intolerance drove him to a miserable death. Now his story is to be told in film...
Sport
England’s opening goalscorer Alex Oxlade-Chamberlain battles with Scotland’s Charlie Mulgrew
FootballEngland must learn to keep possession and dictate games before they are exposed by the likes of Germany and Brazil
Life and Style
Make-up artists prepare contestants for last year’s Miss World, held in Budapest
fashion
Sport
Wigan Athletic’s back-of-the shirt sponsor Premier Range has pulled out due to Malky Mackay’s arrival
Football
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

    SThree: Trainee Recruitment Consultant - Soho

    £20000 - £25000 per annum + OTE £35,000: SThree: We consistently strive to be ...

    Ampersand Consulting LLP: Markit EDM (CADIS) Developer

    £50000 - £90000 per annum + benefits: Ampersand Consulting LLP: Markit EDM (CA...

    Carlton Senior Appointments: Director, Private Bank - San Francisco, CA

    $175 - $200 per annum, Benefits: full benefits: Carlton Senior Appointments: P...

    Carlton Senior Appointments: San Diego, CA – Tier 1 House - Senior MD FA

    Not specified: Carlton Senior Appointments: Senior MD Financial Advisor - San ...

    Day In a Page

    US immigration: President Obama ready to press ahead with long-promised plan to overhaul 'broken system' - but will it get past a Republican-controlled Congress?

    Immigration: Obama's final frontier

    The President is ready to press ahead with the long-promised plan to overhaul America's 'broken system' - but will it get past a Republican-controlled Congress?
    Bill Cosby rape allegations explained: Why are these allegations coming out now? Why didn’t these women come forward earlier? And why has nobody taken legal action?

    Bill Cosby rape allegations explained

    Why are these allegations coming out now? Why has nobody taken legal action? And what happens next for the man once thought of as 'America's Dad'
    Four years of excruciating seizures caused by the 1cm tapeworm found burrowing through a man's brain

    You know that headache you’ve got?

    Four years of excruciating seizures caused by the 1cm tapeworm found burrowing through a man's brain
    Travelling to work by scooter is faster than walking and less sweaty than cycling, so why aren’t we all doing it?

    Scoot commute

    Travelling to work by scooter is faster than walking and less sweaty than cycling, so why aren’t we all doing it?
    Paul Robeson: The story of how an American icon was driven to death to be told in film

    The Paul Robeson story

    How an American icon was driven to death to be told in film
    10 best satellite navigation systems

    Never get lost again: 10 best satellite navigation systems

    Keep your vehicle going in the right direction with a clever device
    Paul Scholes column: England must learn to keep possession and dictate games before they are exposed by the likes of Germany and Brazil

    Paul Scholes column

    England must learn to keep possession and dictate games before they are exposed by the likes of Germany and Brazil
    Michael Dawson: I’ll thank Spurs after we win says defender as he prepares to return with Hull

    Michael Dawson: I’ll thank Spurs after we win

    Hull defender faces his struggling former club on Sunday ready to show what they are missing. But he says he will always be grateful to Tottenham
    Frank Warren column: Dr Wu has big plans for the professionals yet he should stick to the amateur game

    Frank Warren column

    Dr Wu has big plans for the professionals yet he should stick to the amateur game
    Synagogue attack: Fear unites both sides of Jerusalem as minister warns restoring quiet could take 'months'

    Terror unites Jerusalem after synagogue attack

    Rising violence and increased police patrols have left residents of all faiths looking over their shoulders
    Medecins sans Frontieres: The Ebola crisis has them in the headlines, but their work goes far beyond West Africa

    'How do you carry on? You have to...'

    The Ebola crisis has Medecins sans Frontieres in the headlines, but their work goes far beyond West Africa
    Isis extends its deadly reach with suicide bombing in Kurdish capital

    Isis extends its deadly reach with suicide bombing in Kurdish capital

    Residents in what was Iraq’s safest city fear an increase in jihadist attacks, reports Patrick Cockburn
    Underwater photography competition winners 2014 - in pictures

    'Mysterious and inviting' shot of diver wins photography competition

    Stunning image of cenote in Mexico takes top prize
    Sir John Major: Negative West End portrayals of politicians put people off voting

    Sir John Major hits out at theatres

    Negative West End portrayals of politicians put people off voting
    Kicking Barbie's butt: How the growth of 3D printing enabled me to make an army of custom-made figurines

    Kicking Barbie's butt

    How the growth of 3D printing enabled toy-designer to make an army of custom-made figurines