OFT to investigate payday loans
The review will investigate compliance with the Consumer Credit Act and the OFT’s guidance on irresponsible lending. Evidence gained during the review will be used to boost standards across the sector and to drive out companies that are not fit to hold consumer credit licences.
There are a number of issues of concern that the OFT will focus on during the review, including: giving loans without first checking adequately that the borrower can afford to repay them, inappropriately targeting particular groups of people with clearly unsuitable or unaffordable credit, and rolling over loans so that charges escalate and the loans become unaffordable.
Last year consumer group Which? found widespread poor practice in the payday loans market during an investigation.
“All too often, we found firms making misleading claims about APR, suggesting customers borrow more than they need and then encouraging them to rollover existing loans for several months. We also found several potential breaches of the Consumer Credit Act,” said Which? chief executive Peter Vicary-Smith.
“The OFT must take tough action and deal firmly with any payday lenders that it finds breaching the rules. Which? would urge the OFT to also address the poor privacy provisions and lax website security common in this market. Borrowers need to know what will happen to their data when they sign up for a loan, and that data must be protected.”