Payday lenders face Competition Commission probe

 

Payday lenders will face a probe from the Competition Commission after being referred to the regulator this morning by the Office of Fair Trading.

The Watchdog warned of “deep-rooted problems” and that “features of the payday lending market prevent, restrict or distort competition”.

It said that many firms’ business models are based on making loans which are unaffordable, leading to borrowers paying far more than expected through rollovers and additional interest and charges.

Lenders appear to make up to half of their revenue from such practices.

The OFT’s investigation of 50 of the top payday lenders has revealed that they appear to target borrowers with poor credit histories, limited access to other forms of credit and an urgent need to borrow.

It means that lenders are competing primarily on the availability and speed of loan approval, rather than price. That is weakening competition in price among lenders, the OFT said.

Clive Maxell, OFT chief executive, said: Competition appears not to be working properly in the payday lending market, allowing firms to profit from making loans that cannot be paid back on time.”

The move comes ahead of a Westminster summit on the sector planned for Monday. Consumer Minister Jo Swinson has called together payday lenders, charities, consumer groups and other minister to a Department of Business meeting to discus the problems.

The campaign is growing to curb the worst practices of a £2.2bn sector that has been accused of preying on vulnerable people.

Yesterday north London council Haringay banned payday lender websites from its public computers, in libraries and other places, following a similar move by Cheshire East council on Monday.

Meanwhile a number of universities have now banned payday loan advertising from their campuses.

Last week London club Millwall became the third Championside side – following Sheffield Wednesday and Bolton - to turn down sponsorship from leading lender Quick Quid.

Meanwhile Sheffield Labour MP Paul Blomfield has introduced a Private Member’s Bill to crack down on payday lenders.

Responding to today’s move, Which? Executive director Richard Lloyd, said: “Referring payday lenders to the Competition Commission doesn’t mean the OFT can now stand down. It must get tough and enforce existing rules.”

The OFT has promised to continue “to crack down on payday lenders that breach the law” but passes over responsibility to regulate the sector to the Financial Conduct Authority next April.

It said that by referring the market now the work of the Competition Commission will be able to provide the FCA with evidence on which to develop its rules and new powers from April 2014. The City Watchdog will have the ability to place a cap on interest rates and limit the number of rollovers lenders can make.

Start your day with The Independent, sign up for daily news emails
News
ebookA unique anthology of reporting and analysis of a crucial period of history
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.

iJobs Job Widget
iJobs Money & Business

Guru Careers: Pricing Analyst

£30 - 35k: Guru Careers: We are seeking a Pricing Analyst to join a leading e-...

SThree: Trainee Recruitment Consultant

£20000 - £25000 per annum + OTE £45K YR1: SThree: At SThree, we like to be dif...

SThree: Trainee Recruitment Consultant

£20000 - £25000 per annum + competitive: SThree: Did you know? SThree is a mul...

Guru Careers: C# Project Team Lead

£55 - 65k (DOE): Guru Careers: A unique opportunity for a permanent C# Develop...

Day In a Page

Fifa corruption: The 161-page dossier that exposes the organisation's dark heart

The 161-page dossier that exposes Fifa's dark heart

How did a group of corrupt officials turn football’s governing body into what was, in essence, a criminal enterprise? Chris Green and David Connett reveal all
Mediterranean migrant crisis: 'If Europe thinks bombing boats will stop smuggling, it will not. We will defend ourselves,' says Tripoli PM

Exclusive interview with Tripoli PM Khalifa al-Ghweil

'If Europe thinks bombing boats will stop smuggling, it will not. We will defend ourselves'
Raymond Chandler's Los Angeles: How the author foretold the Californian water crisis

Raymond Chandler's Los Angeles

How the author foretold the Californian water crisis
Chinese artist who posted funny image of President Xi Jinping facing five years in prison as authorities crackdown on dissent in the arts

Art attack

Chinese artist who posted funny image of President Xi Jinping facing five years in prison
Marc Jacobs is putting Cher in the limelight as the face of his latest campaign

Cher is the new face of Marc Jacobs

Alexander Fury explains why designers are turning to august stars to front their lines
Parents of six-year-old who beat leukaemia plan to climb Ben Nevis for cancer charity

'I'm climbing Ben Nevis for my daughter'

Karen Attwood's young daughter Yasmin beat cancer. Now her family is about to take on a new challenge - scaling Ben Nevis to help other children
10 best wedding gift ideas

It's that time of year again... 10 best wedding gift ideas

Forget that fancy toaster, we've gone off-list to find memorable gifts that will last a lifetime
Paul Scholes column: With the Premier League over for another year, here are my end of season awards

Paul Scholes column

With the Premier League over for another year, here are my end of season awards
Heysel disaster 30th anniversary: Liverpool have seen too much tragedy to forget fateful day in Belgium

Liverpool have seen too much tragedy to forget Heysel

Thirty years ago, 39 fans waiting to watch a European Cup final died as a result of a fatal cocktail of circumstances. Ian Herbert looks at how a club dealt with this tragedy
Amir Khan vs Chris Algieri: Khan’s audition for Floyd Mayweather may turn into a no-win situation, says Frank Warren

Khan’s audition for Mayweather may turn into a no-win situation

The Bolton fighter could be damned if he dazzles and damned if he doesn’t against Algieri, the man last seen being decked six times by Pacquiao, says Frank Warren
Blundering Tony Blair quits as Middle East peace envoy – only Israel will miss him

Blundering Blair quits as Middle East peace envoy – only Israel will miss him

For Arabs – and for Britons who lost their loved ones in his shambolic war in Iraq – his appointment was an insult, says Robert Fisk
Fifa corruption arrests: All hail the Feds for riding to football's rescue

Fifa corruption arrests

All hail the Feds for riding to football's rescue, says Ian Herbert
Isis in Syria: The Kurdish enclave still resisting the tyranny of President Assad and militant fighters

The Kurdish enclave still resisting the tyranny of Assad and Isis

In Syrian Kurdish cantons along the Turkish border, the progressive aims of the 2011 uprising are being enacted despite the war. Patrick Cockburn returns to Amuda
How I survived Cambodia's Killing Fields: Acclaimed surgeon SreyRam Kuy celebrates her mother's determination to escape the US

How I survived Cambodia's Killing Fields

Acclaimed surgeon SreyRam Kuy celebrates her mother's determination to escape to the US
Stephen Mangan interview: From posh buffoon to pregnant dad, the actor has quite a range

How Stephen Mangan got his range

Posh buffoon, hapless writer, pregnant dad - Mangan is certainly a versatile actor