OFT clamps down on payday lenders
The Office of Fair Trading (OFT) is increasing its scrutiny of payday loan companies after the number of complaints about them soared.
In a report to the Government, the OFT revealed that the number of complaints received by helpline Consumer Direct about payday loan companies more than doubled to 1,535 in the 11 months to November.
In 2010, the number of complaints received by Consumer Direct in the whole year was just 700.
Complaints to the Financial Ombusdman have also increased – by 72 per cent this year, compared with 2010.
Payday loan companies have been found to be breaking advertising rules and the OFT is checking the websites of around 50 firms.
Payday lenders are also failing to check if customers can afford to take out a loan.
They often promise a decision on a loan within minutes, a clear indication that the correct checks are not being carried out.
Rolling over a loan can lead to hefty charges which can soon send a debt spiralling out of control and the OFT is investigating complaints that they do not explain their charges adequately.
Other concerns include the misuse of continuous payment authority, which allow payday loan companies to take funds from a borrower’s bank account even if the account is overdrawn.
The OFT has the power to confiscate companies’ consumer credit licences if they fail to adhere to guidelines.
Earlier this week debt advice groups warned that official data on the short-term loan market is two years out of date.
The Centre for Responsible Credit is calling for a national database of short-term loans to be established urgently.
R3, the trade body for insolvency practitioners, estimates that 3.5 million people will seek a payday loan in the next six months.
The OFT is due to carry out a formal compliance review of the lending market early next year.
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