Rogue payday lenders who rip-off vulnerable people face instant closure under a new crackdown set to be introduced next spring.
In a major victory for debt campaigners, the Office of Fair Trading is planning new powers that will allow it to shut firms as soon evidence of wrongdoing emerges.
That would get rid of the anomaly under current laws, which allows dodgy firms to carry on in business for up to two years before being shut.
David Fisher, OFT Director of Credit, said: “This is an important new power that will allow us to deal quickly with businesses posing an immediate and serious risk to consumers.”
“We expect to use the power in serious cases where it is essential we prevent a business operating to protect people.”
The watchdog will use its new powers where there is an urgent need to protect consumers from harm.
In extreme cases, where lenders threaten borrowers or harm them, their consumer credit licence will be suspended immediately.
In other cases, when lenders are fraudulent or dishonest, or target vulnerable consumers with harmful practices, the process may take up to a month.
But it will stop the cycle followed by rogue operators that know they have two years to profit from underhand or illegal practices before being shut down.
At present they know they have plenty of time to build up a fortune. When the new powers are introduced and the cycle is reduced to a month, it is hoped that the rogue operators will be driven out of the business.
Once their licence is suspended, it is illegal for them to carry on in business.
Labour MP Yvonne Fovargue has campaigned for a crackdown on payday lenders for years. Her constituents in the north-west town of Makerfield have been targeted by unscrupulous lenders.
The industry is currently operating in a manner that can and does penalise vulnerable consumers. “Voluntary regulation has failed miserably and the new power to suspend gives the OFT the power to crack down on the irresponsible actions of an industry making huge profits on the back of vulnerable and low income borrowers,” she said yesterday.
Earlier this year Yes Loans, based in Cwmbran, Torfaen had its licence withdrawn after an OFT investigation discovered that the firm had "deceitful and oppressive" practices.
The OFT’s investigation into the firm had begun in 2009, but Yes Loans was able to continue in business even after the OFT gave notice last year that it would withdraw its licence.
Evidence against the company had also been building up at the Financial Ombudsman Service which had formally investigated 133 complaints made about Yes Loans in 2011, upholding 83 per cent of complaints received in the last six months of the year.