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OFT uncovers reckless lending by payday loan firms

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by Jan Harris
OFT uncovers reckless lending by payday loan firms

The Office of Fair Trading (OFT) is formally investigating several payday loan companies due to concern over reckless lending and aggressive debt collection.

The OFT has published its interim report into the payday loan industry, as part of an investigation which started in February.

It found that most of the 50 firms investigated are failing to meet some of its rules.

It has placed all 240 payday loan companies on notice to improve, and those who continue to flout the regulations could be fined or closed down.

Concerns include failing to check if a borrower can afford to pay back a loan, the high proportion of loans which are not repaid on time; the frequency with which loans are rolled over or refinanced; and aggressive debt collection practices.

One of the main concerns is over the misuse of Continuous Payment Authorities (CPAs), which allow lenders to take payments directly from a customer’s debit card at any time during the month.

Under new rules lenders must gain a borrower’s explicit agreement to take out a CPA, and the borrower must be told how it works and how it can be terminated.

David Fisher, director of consumer credit at the OFT, said: “Our revised guidance makes it absolutely clear to lenders what we expect from them when using continuous payment authority to recover debts and that we will not accept its misuse.”

The OFT had expected to complete its investigation into the payday loan industry by the end of the year but due to the amount of information collection, its full report will not be published until 2013.

Meanwhile the Financial Ombudsman Service has warned that consumers can put their credit rating at risk by taking out a payday loan.

Speaking to the Observer, the organisation said that mortgage lenders may discriminate against payday loan borrowers.

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News posted: November 20, 2012

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