Wednesday, July 31, 2013

Payday Lenders start defaulting after OFT investigation

Well, who'd have thought it? No sooner does the Office of Fair Trading start investigating the payday lending market, than 30% of the top 50 companies in the sector throw in the towel, rather than face the scrutiny:
The Office of Fair Trading (OFT) said that 14 of the lenders have told it that they are leaving the payday market and another firm which failed to meet the deadline has said it is no longer operating as a lender.
The watchdog has been carrying out a probe into "deep-rooted" problems within the industry, such as lenders encouraging struggling borrowers to roll over loans they cannot afford so that the debt balloons. Last month it referred the sector for a full-blown investigation by the Competition Commission.
A 12-week cut-off point set by the OFT for 50 lenders, which account for 90pc of the market, to show they are acting responsibly has now passed for all firms.
The 50 companies includes Wonga, and not one of them emerges with a clean bill of health:

The watchdog identified areas of concern with each of the 50 firms and in some cases it sent them annexes of up to 70 pages long.

A loan shark is a loan shark, whether they have a Rottweiler or a saturation advertising campaign.

Citizens Advice is now capitalising on the high profile of payday lenders with a campaign to encourage people to complain about mistreatment to the Financial Ombudsman: 

Citizens Advice chief executive Gillian Guy said: "Citizens Advice sees people day in day out who have been left in absolutely desperate situations by irresponsible lenders.
"Saddled with years worth of debts, many people are left feeling completely powerless."
Debt charity StepChange said the payday problems it is seeing are continuing to worsen. It helped 6,663 people with five or more payday loans in the first half of this year, which was almost the same number it saw for the whole of 2012.
StepChange's head of policy Peter Tutton said: "The number of people we help with payday loans looks set to almost double this year, while problems such as multiple borrowing and inadequate affordability checking by lenders continue to grow.
"The OFT's action including its compliance review and referral to the Competition Commission have both been welcome. However, the OFT should now issue a detailed progress report on how it plans to address the continued consumer detriment caused by payday loans."
Richard Lloyd, executive director of Which? commented: "“The fact that many lenders would rather leave the market than face scrutiny from the regulator shows just how bad practice has been in this fast-growing industry. People are increasingly turning to high cost credit just to pay for essentials or repay other debts, so it is vital that the Government and regulators continue to get tougher on irresponsible lenders."
This is good news, but clamping down on irresponsible lending is only part of the picture. There need to be less toxic alternatives, which address the reasons for people getting into serious financial difficulty in the first place. Despite the minor diversion into the CofE's investment policy, there seems to be a head of steam now behind Justin Welby's intervention last week, and a move from bland acceptance of Wongaville as part of modern life, to a serious questioning of the whole industry.

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