OFT looks into concerns about payday loans

By Joel Stanier

The Office of Fair Trading (OFT) has launched an extensive review of concerns surrounding the payday loans industry - particularly focusing on the way they deal with financially vulnerable customers.

The OFT has set out four key issues it will be investigating:

- Lenders offering loans without properly checking the borrower's ability to repay
- Lenders targeting certain groups who are clearly unsuitable for payday loans
- 'Rolling over' loans - allowing them to build up and become unaffordable over time
- Unfair treatment of borrowers in financial difficulty

The review will involve on-site inspections of 50 major payday lenders, and the OFT has already looked through 50 payday loan websites to identify potential problems.

David Fisher, OFT director of consumer credit, commented: "We are concerned that some payday lenders are taking advantage of people in financial difficulty, in breach of the Consumer Credit Act and not meeting the standards set out in our guidance on irresponsible lending. This is unacceptable. We will work with the trade bodies to drive up standards but will also not hesitate to take enforcement action, including revoking firms' licences to operate where necessary.

"The payday sector has grown considerably since the OFT's high-cost credit review in 2010. This, combined with the current tough economic conditions makes it the right time for us to review the industry and improve protection for consumers."

A loans expert at Think Money commented: "Payday loans can be useful for people who want to borrow money for a short period, but they should be avoided by anyone with any concerns about their ability to repay what they owe. The interest rates are usually very high, and charges can also start to add up if the loan is not repaid on time."

Image © iStockPhotos

Tags: payday loans, payday loan, Office of Fair Trading, OFT, loans, loan

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