The OFT has written to all 240 payday lenders highlighting its concerns over poor practices in the sector and has opened formal investigations into several lenders.
In a progress report published today the Office of Fair Trading’s review of the payday sector highlighted concerns over affordability checks, non-repayment of loans, a lack of forbearance, debt collection practices and frequency of refinancing.
David Fisher, OFT director of consumer credit, said: “We have uncovered evidence that some payday lenders are acting in ways that are so serious that we have already opened formal investigations against them. It is also clear that across the sector lenders need to improve their business practices or risk enforcement action.”
Fisher added: “Our report shows that a large number of payday loans are not repaid on time. I would urge anyone thinking about taking out a payday loan to make sure they fully understand the costs involved so they can be sure they can afford to repay it.”
Evidence was collected following a sweep of the lenders’ websites, 686 consumer complaints, mystery shopping exercises, 1,036 survey responses and a programme of inspections.
It also expects to warn the majority of the 50 firms inspected, which account for the majority of loans, that they risk enforcement action if they do not improve practices and procedures uncovered when they were inspected.
The lenders must provide OFT with independent audits to verify they have improved their practices and procedures to comply with legal obligations and expected standards.
The Sun newspaper today highlighted the growing concern over payday loans in a report which said that Brits are taking out multiple payday loans which they are unable to pay back.
It said: “Campaigners have told us that lenders fail to carry out basic checks before handing over cash to debt-ridden customers.”
The paper said the annual interest rate of a payday loan was in excess of 4000%.