Payday lender, MCO Capital, cannot be stopped from lending – at 5,000% interest – until 28-day appeal period is over
A payday lender has been fined and had its licence taken away by the Office of Fair Trading for the first time – but is still lending money at interest rates of more than 5,000%.
The lender, MCO Capital, has 28 days to appeal against the action taken by the watchdog, which fined it £544,505 and revoked its licence after the company failed to check the identity of people applying for its loans. This allowed fraudsters to use the personal details of more than 7,000 individuals to successfully apply for loans amounting to millions of pounds. The lender then wrote to people demanding they repay the loans even though it was aware their details may have been used fraudulently and they may not therefore have borrowed the money.
The OFT said the lender was in breach of money laundering regulations, which are designed to reduce the risks of businesses being used for money laundering and terrorist financing and require lenders to conduct appropriate identity checks. It also said it had asked MCO to stop the practice of writing to people whose details had been used fraudulently on a number of occasions – but the lender had ignored it.
“MCO’s failure to put adequate procedures in place made it vulnerable to fraud. The way in which MCO then wrote to consumers to collect debts caused unnecessary distress and inconvenience to thousands of people,” said David Fisher, OFT director of credit.
However, the action does not stop the lender from being able to continue to offer high-cost loans to its largely low-income borrowers. MCO was trading online under two websites, Helploan.co.uk and Balanceloan.co.uk, when the fraud occurred. Neither name was licenced and both websites have now been shut down. But MCO is continuing to trade as Paycheckcredit.co.uk, Popcredit.co.uk and Speedcredit.co.uk. Paycheck’s typical interest rate on its loans is 5,420%. The OFT cannot stop it trading under these names until the 28-day appeal period has passed.
Labour MP Stella Creasy, who has campaigned for stricter regulation of short-term lenders and described such firms as legal loan sharks, said the practices engaged in by MCO could be commonplace: “It speaks to widespread concerns about the payday loan industry and there should be more robust procedures in place because this is an industry that is out of control. One in three payday loans are issued to people to pay off an existing loan, so it’s welcome to see the OFT tackle payday lenders, but fines of this type will do little to stop them, they are peanuts to these firms. Caps on the cost of credit is needed to tackle payday lenders.”
The biggest name in the payday loan sector is Wonga, which charges 4,215% APR on it loans and which recently announced its controversial sponsorship of the second series of Simon Cowell’s ITV’s gameshow Red & Black, hosted by Ant & Dec.
Wonga’s sponsorship of the high-profile programme, which will use the slogan “Straight talking money”, immediately came under fire from Creasy. She tweeted on Wednesday, urging people to tweet Ant and Dec’s official Twitter account, and email the general inquiry email address of their agent to protest about the sponsorship. “Wonga is wronga until there’s caps on the cost of credit,” she tweeted.
Creasy added today: “Most payday lenders are doing the same thing [as MCO]. I’ll be very interested to see if other firms are found to have done the same thing.”
“MCO’s practices will have caused considerable distress for consumers, so it is good to see this action from the OFT,” added Sarah Brooks, director of financial services at Consumer Focus. “However, the difficulty is that currently the OFT has no power to stop the company trading until the appeals process has finished. This means in practice that the firm can continue to treat consumers unfairly and continue to ignore the OFT’s request to change its practices.
She added: “This type of business behaviour is appalling and underlines the acute need for the power to revoke licences immediately as the government recently announced it plans to.”
It is the first time the watchdog has fined a payday lender and the first time it has revoked a licence in this sector. Pay day lenders, which lend small loans for short periods but charge huge interest rates, have attracted enormous amounts of criticism in recent years from consumer bodies, debt charities and politicians.