Payday lenders have been in the dock again this week.
The Competition and Markets Authority said the high-cost credit industry should be forced to sign up to an officially recognised price comparison site.
The move would ensure that borrowers could see at a glance how much different companies charge and the best deals. Meanwhile it should ensure that lenders do actually compete with each other on price rather than simply charging the highest possible rates.
That’s an understandable fear of what may happen when the Financial Conduct Authority introduces a cap on the cost of loans in January. Given lenders’ previous actions, you’d expect them simply to set their rates at the highest possible price.
The CMA also proposed a crackdown on lead generators, the online loan brokers which have been identified as a particular problem. They will have to explain their role and how they operate much more clearly to customers, rather than effectively passing themselves off as lenders.
The lead generators are a weeping sore on an already unattractive industry. They do nothing more than harvest people’s personal details and then sell them on to lenders in return for a fat fee.
The CMA said many borrowers had no idea that lead generators sold their details to lenders based on the fees the lenders offered to them, rather than finding the best possible rate.
It’s time some light was shed on their sordid business and the firms exposed for the unnecessary leeches they are.
I’ve long believed that the internet is the home for the worst excesses of the payday loan industry when unscrupulous firms lurk waiting to trick unsuspecting, vulnerable people into their web of rip-off deceits.
So I was fascinated this week to see research undertaken in recent months which appears to show that four out of five payday loan ads which appear high up on Google’s sponsored rankings don’t comply with regulatory rules on advertising.
The issue of high-cost loan advertising is one that I believe needs to be tackled fast. I’ve never sought to put the payday lenders out of business, only to make them act in a responsible way.
But some of the advertising I’ve seen over the years has been far from responsible. There was a very memorable one a year or so ago telling students that Student Loans are too expensive and that instead they should take out a payday loan to party. Encouraging people to get into debt when they can’t afford it is the worse kind of irresponsible behaviour from a lender. So I’m always pleased when loan firms’ ads are banned, as happened with a rule-breaking Wonga telly commercial this week.
To be fair to Britain’s biggest payday lender, it took its much-criticised Wonga puppets off the air back in July, as part of an attempted clean-up campaign by its new chairman, Andy Haste, the former insurance bigwig brought into turn the struggling company around.
That’s hardly gone well, with Wonga being forced to write off the debts of 330,000 borrowers it lent to that it shouldn’t, under tighter affordability rules.
Wonga may well turn things around, especially with regulators buzzing around ensuring it doesn’t have much wiggle room to revert to it’s previous somewhat dubious behaviour.
But that won’t stop the internet law-breaking loan firms. Research seen by The Independent appears to show that up to 80 per cent of adverts that appeared in the Google paid search space – in other words, the pay-per-click ads which do so much to fill Google’s coffers – do not comply with the FCA rules on financial promotions.
The research was conducted by Amigo Loans, a company that offers guarantor loans at a pretty high APR of 49.9 per cent, but nothing like the 5,000 or more per cent charged by some of the payday lenders. Indeed, Wonga’s quoted annual percentage rate is 5,583 per cent.
Amigo monitored the online ads for a month to ensure that its results weren’t a one-day wonder. Time and time again the results were conclusive – with the majority of ads not conforming to the rules, the company said. It has contacted the FCA, Google, and the ASA to highlight the issue, but says no action has yet been taken.
“Online is the first area people go to look for payday loans, so this rule-breaking has to be stopped as soon as possible before more people are misled,” says James Benamor, Amigo’s boss. I agree. Dodgy online loans must be outlawed. And it’s time Google took some responsibility for publishing them and acted to stop the ads.