OFT investigates Payday loans

The Office of Trading (OFT) has now decided to investigate the payday lending market, as there has been a rapid rise (72%) in complaints to the Financial Ombudsmen Service about the payday product, with an additional annual rise of 171% in the number of complaints upheld.

The OFT have identified six areas of deep concern, they are:

• Misuse of continuous payment authority – which may result in the borrower incurring unauthorised overdraft charges or struggling to meet priority debts and essential living expenses.

• Rollover of loans – which can significantly lengthen the repayment period and rapidly escalate the outstanding debt.

• Irresponsible advertising and sales practices – which risks improper conduction of affordability assessments with consumers being denied a clear explanation of the product and associated risks.

• Targeting potentially vulnerable consumers.

• Transparency concerns – including a lack of clarity about who consumers are dealing with, with websites not making clear whether they are a lead generator, broker or lender, and not providing basic contact details.

• Treatment of customers in arrears and default – evidence of unfair debt collection practices and a failure to exercise forbearance and consideration towards borrowers in financial difficulty.

The OFT has said it will now tighten its scrutiny of new applications and renewals for the sector, and is conducting a comprehensive advertising sweep with a view to launching a review of compliance with the Irresponsible Lending Guidance in the payday lending market in the New Year.

This review will assess and test wider compliance levels across the sector, identify practices harming consumers and assess reasons for non-compliance. The OFT has said it will use the findings to take further enforcement action, where appropriate, and as the basis for ongoing liaison with the industry to drive up standards.