Timid and ineffective regulators have failed to tackle “predatory” payday-loans companies which leave customers with “out of control” debts, a committee of MPs has warned.
It accuses unscrupulous firms at the “shabby end” of the credit market of targeting vulnerable people to take out loans which rapidly mount because of high interest rates – and soon become impossible to repay.
The Public Accounts Committee is scathing about the Office of Fair Trading’s (OFT) failure to get to grips with the unsavoury practices of some companies, which cost their victims at least £450m a year. Its chairman, Margaret Hodge, accused the watchdog of being “ineffective and timid in the extreme” and of passively waiting for consumers’ complaints before acting. She said it has never given a fine to any of the 72,000 firms in the market and rarely revokes a company’s licence.
Its report comes days after Citizens Advice said it had fresh evidence of “out of control” payday lenders failing to act responsibly and hounding people for money. It said it had seen cases in recent months which included payday lending to people who were aged under 18, had mental-health issues or were drunk when they took out the loan.
In March, the OFT handed 50 payday lenders a 12-week deadline to prove their good behaviour or risk losing their licences to trade, which the MPs said was an “encouraging” step.
Ms Hodge said: “We will be expecting the OFT to show this marks the start of a genuine step up from the inadequate approach that was evident at our hearing.”
The committee’s report said the OFT “lacks basic information about the consumer-credit market, such as the amount of lending by each firm, the products sold by each and the types of consumers buying the products”.
The OFT will be replaced as the consumer-credit regulator by the Financial Conduct Authority next year, and the report said the new watchdog “needs to have a fundamentally different and more robust approach”.
A spokesman for the OFT said: “In the last financial year alone, the OFT has revoked the licences of some of the UK’s largest credit brokers and debt-management firms, and taken formal action in more than 85 other cases.”
He added: “We are disappointed the committee has not acknowledged the constraints of the legislation under which the OFT operates which... was not designed to provide a supervisory approach to addressing potential consumer harm.”