The OFT has yet to contact many payday lenders, two months after damning report pointed to widespread breaches of rules
Almost two months after issuing a damning report on the payday loans industry the Office of Fair Trading has still not contacted all of the firms it believes could be breaching rules on responsible lending.
The high-cost credit industry has boomed in recent years, with an influx of lenders offering short-term loans, often at interest rates in excess of 4,000% APR. Consumers have reported being offered discounts to take out further loans, and facing spiralling charges which have turned small loans into huge debts.
A year-long review of the £2bn industry by the regulator found widespread evidence of irresponsible lending and breaches of the law which were resulting in “misery and hardship for many borrowers”.
The OFT said it would be writing to 50 lenders representing 90% of the market to outline changes they needed to make to their business practices, giving them 12 weeks to change their ways. However, more than seven weeks later, not all of those letters have been sent out.
A spokesman for the OFT said it hoped to have sent out all of the letters by the end of next week. A firm receiving a letter the following week will have until late July to respond.
The letters, some of which are thought to be several pages long, detail each firm’s breaches of the rules and what the OFT expects it to do to put things right. Twelve weeks after receiving these, lenders will be expected to provide details of the action they have taken.
If they still do not meet the rules, the OFT can begin legal action to take away their credit licences or, if it finds extreme detriment is being caused by the lender, it can suspend the licence with immediate effect.
Una Farrell, spokeswoman for the debt advice charity StepChange, which in 2012 saw cases involving payday loans double, said the OFT needed to act fast.
“We are seeing rising numbers of people seeking our help with payday loans as well as coming to us with complaints about how they are being treated by payday lenders, so there is no time to waste in sorting out this sector,” she said.
Citizens Advice, which has also reported a surge in the number of debt cases it deals with which involve payday loans, said its biggest concern was that the OFT acted swiftly against lenders which failed to clean up their act.
The charity’s chief executive, Gillian Guy, said: “Some payday lenders are sending the poorest people into financial ruin through irresponsible lending and appalling debt collection practices.
“It’s paramount that the OFT carries out a thorough investigation and uses its powers to immediately ban lenders who treat people unfairly.”
Guy has called for high street banks to provide micro loans to people who would otherwise turn to payday lenders for short-term credit.
“It’s a damning indictment of the lending market that so many people are having to resort to payday loans. High street banks should step into the breach by offering a responsible alternative,” she said.