Payday loan companies under scrutiny

Posted by Sharon Yewen in Personal Finance on 22 November 2012 - Sharon is Financial Controller at checkmyfile.

The Office of Fair Trading (OFT) has been inspecting the payday loan industry since February 2012 and, in an interim report, has warned that companies offering such loans must improve the way in which they lend money and collect debts, otherwise there will be penalties.

The OFT is already worried about its findings of reckless lending and aggressive debt collection. All 240 payday lenders have been put on notice to improve.

There are a number of concerns over the operation of the payday loan industry: lenders do not check properly to ascertain whether borrowers can afford to repay the money; too many loans are not repaid on time; loans are extended too often; lenders are too aggressive when borrowers fail to pay on time.

The OFT is also concerned about lenders using a continuous payment authority (CPA) which is when a credit card is used to ensure they are repaid automatically. They say that from now on borrowers must be fully informed about this method of payment and how to get out of it, and there must be an explicit agreement.

Lenders should not be able to continue taking money when the funds are not there.

Joanna Elson, Chief Executive of the Money Advice Trust says that “payday loans have a habit of making a bad situation worse”. She goes on to explain that “many thousands of people have come to us for help after having seen their debt problem made far more serious by taking out one or more payday loans.”

The Financial Ombudsman Service (FOS) says that between April and September 2012 they have received 271 new complaints. This is compared with 296 complaints in the whole of last year.

They are currently upholding 8 out of 10 cases in favour of the consumer.

Clearly there is a need for regulation and it should be all laid out in the OFT’s full report which is due in the New Year.

Sharon Yewen is Financial Controller at Checkmyfile. She is an FCA and has a degree in accountancy from the University of Exeter. You can contact Sharon at sharon.yewen@checkmyfile.com

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