The Office of Fair Trading have issued a 12-week deadline to payday loan companies following a review of the payday lending market, which found that the market is fundamentally wrong on almost every level.
They found that the top 50 lenders, who account for 90% of the market, are guilty of irresponsible lending and failure to comply with compulsory standards. All aspects of the processes were found to be at fault, from advertising to the debt collection, with lenders routinely failing to conduct adequate assessments of affordability before lending or before rolling over loans, not explaining the method in which repayments will be collected, using aggressive debt collection practices and not offering mercy to borrowers in financial difficulty.
There has been a major increased in the number of complaints placed with the Financial Ombudsman Service regarding payday lending, with the main complaints being the loan being unaffordable, charges being too high, suitable repayment plans being refused and fraudulent loans. The customer was the victor in over 75% of these cases, however many people are too reluctant to admit they’re in financial distress and never escalate their enquiry to a complaint.
Struggling with payday debts can be very stressful, with many people borrowing just to pay off other debts, entering a cycle that can be hard to get out of. The investigation determined that the lenders aren’t making this any easier for customers either, with mercy for people who are struggling financially rarely given, and suitable repayment plans being denied.
Although the loans are advertised as ‘one-off’ or ‘quick-fix’ lending options, the OFT found that lenders’ rely heavily on profits from ‘rollover’ loans, in which the customer pays only the interest for one month, and does not reduce the debt in any way. In many cases this was being advertised as an emphasised feature, with “no credit checks”, “loan extension guaranteed” and “extend up to four or five times” being advertised before even the cost of the loan.
All of the lenders investigated now have just 12-weeks to shape up to comply with compulsory standards or they will be forced to close down.