Payday lenders face closure as watchdog bares its teeth
Crackdown aims to protect thousands of desperate people facing sky-high interest rates
Sunday 25 November 2012
Payday lending – short-term loans at sky-high interest rates – is now firmly in the dock. The Office of Fair Trading reckons there is widespread abuse going on and said last week it plans spot inspections for 50 providers.
If the OFT's past action with the sale and rentback industry is anything to go by, payday lenders found wanting by the OFT inspectors can expect short shrift. Sources at the watchdog have told the Independent on Sunday that credit licences could be withdrawn from offending lenders, effectively putting them out of business.
Even the Prime Minister David Cameron is wading in, suggesting that putting such firms out of business may be no bad thing. And this comes hot on the heels of the revelation that a staffer at the UK's biggest payday company Wonga, was found to have been "trolling" Labour MP Stella Creasy on twitter because she dares to campaign against payday loans.
The list of gripes relating to the expensive, short-term loans grows almost by the week. The incredibly high interest charges aside, consumer groups have long been worried by the practice of rollover loans, when a debt which is about to expire is folded within a new one, potentially ramping up the interest payable.
In addition, payday lenders have been accused of targeting the young and not making proper credit checks on borrowers.
Joanna Elson, the chief executive of the Money Advice Trust, says 17,000 people have contacted it this year in a payday loan crisis and warns: "Payday lending is an industry that requires close scrutiny.
"We have a lengthy list of concerns about the practices of many companies in the sector and we hope the OFT review will kick-start a more serious consideration of the problems payday loans create. It is clear to us that something is drastically wrong with the way these applicants are being given access to credit they can't afford to repay."
And she says that when borrowers can't afford to repay their loans many lenders are less than sympathetic: "The way in which struggling individuals are chased by payday loans companies for repayment is a cause of grave concern.
"Lenders are required by the OFT to treat their customers fairly and with forbearance if they experience difficulties. We have noted that payday lenders are particularly reluctant to negotiate sustainable repayment plans with borrowers, often refusing to freeze interest and charges, and demanding full and final settlements rather than more affordable monthly repayments."
Meanwhile the debt charity, Stepchange, which deals with thousands of consumers in dire financial straits each week, has major issues with the payday industry and wants action.
"The OFT's report shows that when statutory requirements are in place, compliance levels among lenders are much higher. But, where lenders' obligations are set out in guidance, compliance is lower," Peter Tutton, Stepchange's head of policy, says.
"There are new voluntary codes of practice set to come into effect next week. The Government needs to send a firm message that it is prepared to regulate the industry through legislation if these codes are not adequately adhered to."
The Consumer Finance Association, which represents a large number of payday lenders, says its voluntary code answers some of the concerns of critics. This sets out a cap to the number of rollover loans that can be given to borrowers and freezing interest for those in financial difficulty.
Loan repayments are meant to be transparent so that borrowers are not surprised by hidden charges and robust credit checks should be made of applicants, says Russell Hamblin-Boone, the recently appointed chief executive of the CFA.
But not all lenders are signed up to the code and this concerns Mr Hamblin-Boone: "There are some lenders out there who are failing consumers and I'd welcome regulators getting them out of the industry."
Nevertheless the CFA chides payday's critics for failing to understand the sector. "Payday exists partly because in 2007-8 banks stopped lending to large groups of people and it can be a more cost-effective way of getting a short-term loan than an unauthorised overdraft or breaching a credit card limit," says Mr Hamblin-Boone. "Many of the most vocal critics have never visited a payday lender in their lives."
But the voluntary code doesn't go far enough for many, with Citizens advice calling for an independent body to monitor compliance. As for Stepchange, Mr Tutton says payday lending firms have just "six months" to "establish a clear and convincing plan as to how they are going to reform their industry".
In particular, the charity says providers need to use "real-time and mainstream credit reference agencies", identify those who are struggling earlier and help them rather than offering more loans, limit the number of loans that can be accessed, and cap often swingeing charges.
In the meantime, though, the OFT will continue to carry out spot checks and is planning in the new year to publish its findings into whether or not to recommend legislation. Many of those firms that are, according to the OFT, guilty of "serious" abuse may not be there to see it.
Timeline of a scandal
2007 Payday lending arrives in the UK from the US, where it had been thriving for years
2008 Which? and Vince Cable, now Business Secretary, sound the alarm over the influx of payday lenders as the credit crunch bites
2009 Credit action complains to the Office of Fair Trading that payday lenders are using social networks to sell their loans, potentially targeting younger consumers
2010 The OFT publishes a "review of high-cost credit"
Feb 2012 The OFT says it will review the payday loans industry to see if there are abuses going on
Oct 2012 Newcastle United announces shirt sponsorship with UK's biggest payday lender Wonga. The move prompts protests from consumer groups
Nov 2012 OFT announces its review highlights widespread failings in the payday industry and it will inspect up to 50 providers
- 2 How the language you speak changes your view of the world
- 4 Italian police 'reveal' what Jesus looked like as a young boy
In defence of liberal democracy
Over 50,000 families shipped out of London boroughs in the past three years due to welfare cuts and soaring rents
EU asylum policy is 'a direct threat to our civilisation', says Nigel Farage
The Rothschild Libel: Why has it taken 200 years for an anti-Semitic slur that emerged from the Battle of Waterloo to be dismissed?
General Election 2015: UK will be 'run for the wealthy and powerful' if Tories retain power, Labour warns
Schools forced to act as 'miniature welfare states' with teachers buying underwear and even haircuts for poor pupils
iJobs Money & Business
£215 per day: Ashdown Group: Junior Project Manager (website, web application ...
£40-50K: Guru Careers: We are seeking an experienced Software Engineer / Softw...
£22000 per annum + pension,bonus,career progression: Ashdown Group: An establi...
£22000 per annum + pension,bonus,career progression: Ashdown Group: An establi...
Day In a Page
Only a few minutes' drive from the charming town of Marlow, this two-bedroom home sits on the private riverside estate of Harleyford.
This detached four-bedroom home in Middleyard is arranged over two floors, with features that include a wood-burning stove and bespoke oak staircase.
In a row of eight detached Georgian residences, this five-bedroom home offers views of The Sound, Mount Edgcumbe and Cornwall from its impressive veranda and full-length balcony.
If you love cooking for friends this two-bedroom flat - complete with views of the iconic Battersea Power Station and an open-plan kitchen/dining area - will go down a treat.
Located above Grasmere village, this five-bedroom home is arranged over three floors and offers countryside views across Grasmere Lake towards Silver Howe.
Surrounded by the Western fells, this five-bedroom Georgian home retains many original features including panel-plastered ceilings, sash windows and fireplaces.
This six-bedroom home is set amongst three acres of grounds. Currently a large family home, Clift Hill has potential to make a B&B, subject to change of use permissions.
A former period coach house, Glebe Farm Stable is now a three-bedroom cottage with a double car barn, office, kennels and an outbuilding that's currently used as a gym.
Set sail for this four-bedroom farmhouse in Cowes. With five acres of land and an indoor pool, this home oozes character. There is even potential to let a one-bedroom annexe.
Surrounded by woodland, this five-bedroom manor house has plenty of outdoor storage space in the form of three converted loose boxes, two smaller outhouses and a woodstore.
This four-bedroom detached home comes with a double carport, useful workshop, garden and two walkways that offer views of the adjacent countryside.
With space for an equestrian business, a greenhouse for growing your own veg, a wine store and a gym; this five-bedroom home has all the ingredients for a country retreat.
This four-bedroom home has exposed brick chimneys and a vaulted ceiling in a breakfast room that's ideal for summer entertaining - the doors open to the patio and garden.
The decked roof terrace of this two-bedroom flat is perfect for summer drinks while large windows and ample storage space make for a light and spacious interior.
Surrounded by approximately 15 acres of grounds, this six-bedroom grade II-listed home has been extensively refurbished yet retains many period features.
This four-bedroom home comes with a two-bedroom cottage and commercial office, with planning to extend, in a stunning courtyard setting.
In a pretty Norfolk village, this four-bedroom family home is surrounded by landscaped gardens, with even a self-contained annex for guests.
A few miles from the seaside at Perranporth, this four-bedroom farmhouse sits amongst nine acres of idyllic grounds - including a lake and two barns used as holiday lets.
This five-bedroom home is arranged over three floors of a converted Victorian hospital, offering spectacular views of the Pentland Hills - only three miles from the city centre.
This four-bedroom detached home comes with grounds that span to approximately 2.5 acres, as well as two large patio areas and a double garage.
This four-bedroom cottage is a Grade II-listed town house, well-located for the thriving market town of Nailsworth.
A four-bedroom apartment on the ground floor of a stunning period property in North Yorkshire, with two kitchens and a large south-west facing garden.
This high-spec two-bedroom home is part of a smart collection of new flats at Beaufort Park and has a large decked balcony that's perfect for summer drinks.
Capitalise on the fabulous views of Trevone Bay by taking two homes and creating one spacious boutique B&B. Just a cliff-top walk from Padstow.
Overlooking a golf course, this six-bedroom Edwardian detached home spans four storeys and retains many period features including the original, operational servants' bells...
On the edge of the city, this six-bedroom home comes with an outdoor swimming pool and a large garage block that has annexe potential.
In a Grade II-listed manor just outside of Bath, this three-bedroom home is arranged on two floors with a skylight in a vaulted roof line.
Open the living room's bi-fold wooden doors to reveal a retro-style kitchen, and a conservatory leading to a paved garden at this three-bedroom home.
A Grade II-listed, four-bedroom home, in a charming Somerset village, with a two-storey studio that could be converted into a holiday cottage
A modern four-bedroom Victorian home, within walking distance to the high street
A luxury apartment in the Gothic mansion of Wyfold Court in Kingwood, offers six bedrooms spread over three floors and a turret
This school conversion, near Stockwell Tube, oozes New York loft style. The one-bedroom flat features double height ceilings and exposed brick work
This six-bedroom Georgian home is on three floors with open fireplaces, a two-oven Aga, an annexe, and cottage gardens with outbuildings and a car barn
High Crest House covers an impressive 9384sq ft, with almost three acres of grounds including a tennis court and summer house enclosed by electric gates
A six-bedroom farmhouse with separate accommodation in converted stables. Situated in the village of Church Aston, within walking distance to the market town
A two-bedroom flat with under-heated walnut floors and bespoke built-in storage. The Tube and Clapham Common are a short stroll away
A refurbished seven-bedroom townhouse with staff quarters, cinema room, superb gym, steam room and plunge pool
A minimnalist four-bedroom home designed to the highest spec, featuring glass walls and a kitchen space lit by a glass roof
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 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