Payday lenders have 12 weeks to clean up act or face being shut down, says Office of Fair Trading

OFT will also refer the payday lender industry to the Competition Commission

The Office of Fair Trading has given the UK’s much-criticised payday lenders just 12 weeks to clean up their act or be shut down. It is also planning to refer the industry to the Competition Commission.

In a damning report published this morning after a 12-month review of the sector, the consumer watchdog said its investigations revealed evidence of widespread irresponsible lending and lenders failing to comply with the standards required of them.

It proposes to refer the payday lending market – where short term loans are charged at APRs higher than 4000% - to the Competition Commission after it found evidence of deep-rooted problems in how lenders compete with each other.

Clive Maxwell, OFT chief executive, said: “We have found fundamental problems with the way the payday market works and widespread breaches of the law and regulations, causing misery and hardship for many borrowers.

“Payday lenders are earning up to half their revenue not from one-off loans, but from rolled over or re-financed deals where unexpected costs can rapidly mount up.

“We are proposing to refer this market to the Competition Commission, which has wider powers to get to heart of the problems in this market and to identify and impose lasting solutions that protect consumers.”

The OFT review found evidence of problems throughout the lifecycle of payday loans, from advertising to debt collection, and across the sector, including by leading lenders that are members of established trade associations.

Particular areas of non-compliance included: lenders failing to conduct adequate assessments of affordability before lending or before rolling over loans; failing to explain adequately how payments will be collected; using aggressive debt collection practices; and not treating borrowers in financial difficulty with forbearance.

The OFT didn’t name and shame any particular firms, but damned the whole industry by demanding that the fifty leading lenders, each of which was inspected, must take rapid action to address the OFT’s concerns.

They must demonstrate within 12 weeks that they are fully compliant, or risk losing their licence.  Failure to cooperate with this process will trigger enforcement action.

“Irresponsible lending is not confined to a few rogue payday lenders – it is a problem across the sector,” said Mr Maxwell. “If we do not see rapid, significant improvements by the 50 lenders we inspected they risk their licences being removed. Payday lending is a top enforcement priority for the OFT.”

Gillian Guy, Chief Executive at national charity Citizens Advice said: “Payday loans are proving toxic for many people. Unscrupulous lenders are ramping up costs when customers can’t afford to repay, and are emptying bank accounts to claw back loans, leaving people without a penny to their name. What’s worrying is that these loans are often given without proper credit checks, so too many people are given loans they won’t realistically be able to pay back.

“For too long this industry has acted as a law unto itself. So it is good to see the OFT planning to remove the licences of lenders who do not improve within the 12 week deadline. But to truly protect consumers, lenders who are still found guilty of flouting guidelines must be stopped from trading straight away.”

Click here to read The Money Blog: Payday lenders - helping victims get their lives back

Start your day with The Independent, sign up for daily news emails
News
i100 In this video, the late actor Leonard Nimoy explains how he decided to use the gesture for his character
News
Robert De Niro has walked off the set of Edge of Darkness
news The Godfather Part II actor has an estimated wealth of over $200m
Arts and Entertainment
Fearne Cotton is leaving Radio 1 after a decade
radio The popular DJ is leaving for 'family and new adventures'
Sport
Robbie Savage will not face a driving ban
football
Have you tried new the Independent Digital Edition apps?
ebooks
ebooksA special investigation by Andy McSmith
Voices
voices
Life and Style
Nearly half of all young people in middle and high income countries were putting themselves at risk of tinnitus and, in extreme cases, irreversible hearing loss
health Nearly half of all young people in middle and high income countries are at risk of tinnitus
News
It was only when he left his post Tony Blair's director of communications that Alastair Campbell has published books
people The most notorious spin doctor in UK politics has reinvented himself
Arts and Entertainment
arts + ents
Life and Style
fashion
Arts and Entertainment
James Franco and Zachary Quinto in ‘I Am Michael’
filmJustin Kelly's latest film tells the story of a man who 'healed' his homosexuality and turned to God
News
i100
Arts and Entertainment
Public Service Broadcasting are going it alone
music
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 General

Sauce Recruitment: Retail Planning Manager - Home Entertainment UK

salary equal to £40K pro-rata: Sauce Recruitment: Are you available to start a...

Ashdown Group: Front-End Developer - London - up to £40,000

£35000 - £40000 per annum: Ashdown Group: Creative Front-End Developer - Claph...

Recruitment Genius: Product Quality Assurance Technologist - Hardline & Electric

£18000 - £24000 per annum: Recruitment Genius: The role in this successful eco...

Ashdown Group: QA Tester - London - £30,000

£28000 - £30000 per annum: Ashdown Group: QA Tester - London - £30,000 QA Tes...

Day In a Page

HIV pill: Scientists hail discovery of 'game-changer' that cuts the risk of infection among gay men by 86%

Scientists hail daily pill that protects against HIV infection

Breakthrough in battle against global scourge – but will the NHS pay for it?
How we must adjust our lifestyles to nature: Welcome to the 'Anthropocene', the human epoch

Time to play God

Welcome to the 'Anthropocene', the human epoch where we may need to redefine nature itself
MacGyver returns, but with a difference: Handyman hero of classic 1980s TV series to be recast as a woman

MacGyver returns, but with a difference

Handyman hero of classic 1980s TV series to be recast as a woman
Tunnel renaissance: Why cities are hiding roads down in the ground

Tunnel renaissance

Why cities are hiding roads underground
'Backstreet Boys - Show 'Em What You're Made Of': An affectionate look at five middle-aged men

Boys to men

The Backstreet Boys might be middle-aged, married and have dodgy knees, but a heartfelt documentary reveals they’re not going gently into pop’s good night
Crufts 2015: Should foreign dogs be allowed to compete?

Crufts 2015

Should foreign dogs be allowed to compete?
10 best projectors

How to make your home cinema more cinematic: 10 best projectors

Want to recreate the big-screen experience in your sitting room? IndyBest sizes up gadgets to form your film-watching
Manchester City 1 Barcelona 2 player ratings: Luis Suarez? Lionel Messi? Joe Hart? Who was the star man?

Manchester City vs Barcelona player ratings

Luis Suarez? Lionel Messi? Joe Hart? Who was the star man at the Etihad?
Arsenal vs Monaco: Monaco - the making of Gunners' manager Arsene Wenger

Monaco: the making of Wenger

Jack Pitt-Brooke speaks to former players and learns the Frenchman’s man-management has always been one of his best skills
Cricket World Cup 2015: Chris Gayle - the West Indies' enigma lives up to his reputation

Chris Gayle: The West Indies' enigma

Some said the game's eternal rebel was washed up. As ever, he proved he writes the scripts by producing a blistering World Cup innings
In Ukraine a dark world of hybrid warfare and murky loyalties prevails

In Ukraine a dark world of hybrid warfare

This war in the shadows has been going on since the fall of Mr Yanukovych
'Birdman' and 'Bullets Over Broadway': Homage or plagiarism?

Homage or plagiarism?

'Birdman' shares much DNA with Woody Allen's 'Bullets Over Broadway'
Broadchurch ends as damp squib not even David Tennant can revive

A damp squib not even David Tennant can revive

Broadchurch, Series 2 finale, review
A Koi carp breeding pond, wall-mounted iPads and a bathroom with a 'wellness' shower: inside the mansion of Germany's 'Bishop of Bling'

Inside the mansion of Germany's 'Bishop of Bling'

A Koi carp breeding pond, wall-mounted iPads and a bathroom with a 'wellness' shower