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OFT launches formal payday investigations

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The Office of Fair Trading (OFT) has launched formal investigations into several payday lenders for “aggressive” debt collection practices, after finding 686 consumer complaints across the sector. In a progress report published as part of the OFT’s compliance review of the payday lending sector, it confirmed that it will be writing to 240 short-term lenders from today (20 November) to highlight its concerns about poor practices in the sector. The findings were partly based on 686 complaints made directly by consumers and through intermediaries, half of which were related to issues around debt collection practices. David Fisher, director of consumer credit at the OFT, said: “We have uncovered evidence that some payday lenders are acting in ways that are so serious that we have already opened formal investigations against them.

 

“It is also clear that, across the sector, lenders need to improve their business practices or risk enforcement action.”

 

The OFT has also published revised debt collection guidance today (20 November) that is focused on Continuous Payment Authority (CPA), a controversial mechanism used by payday lenders to collect repayments. It sets out minimum standards for lenders to ensure that the use of CPA is “reasonable and proportionate”. The regulator has outlined that improper use of CPA includes using it without the consent of the borrower, or failing to explain how it works and how it can be cancelled. The OFT also raised concerns about the adequacy of checks made by some lenders to find out whether borrowers can afford loans. It has also taken issue with the proportion of loans that are not paid on time; the frequency with which some lenders roll over or refinance loans; the lack of forbearance shown by some lenders when borrowers get into financial difficulty; and debt collection practices. The findings are based on a ‘sweep’ of the websites of 50 payday lenders, inspections of more than 50 lenders, and a mystery shopper exercise that targeted 156 online and high street lenders. The OFT has said that it will warn the majority of the 50 firms inspected, which account for the majority of loans issued, that they risk enforcement action if they do not act to improve specific practices and procedures that have come to light during the review.

 

It is expected to publish its full report on compliance in the sector in January next year. Joanna Elson, chief executive of the Money Advice Trust, added: “We have a lengthy list of concerns about the practices of many companies in the sector and we hope the OFT review will kick-start a more serious consideration of the problems payday loans create.

 

“Whilst it is important for regulators to get a handle on the situation, it is also important for individuals to be aware of the considerable dangers of going down the payday borrowing path.”

 

Russell Hamblin-Boone, chief executive of the Consumer Finance Association (CFA), which represents payday lenders, came out in defence of the industry.

 

“The CFA and its members have fully supported and actively participated in the OFT’s review of the payday lending sector,” he said.

 

“We understand the OFT’s concerns around some of the practices adopted by some lesser players in the payday lending market.Our biggest advocates are our customers themselves. So as well as highlighting areas of poor practice, the final report must acknowledge the high levels of satisfaction and the value our customers place on short-term credit products.

 

“We believe that our enhanced Code of Practice, which comes into force next week, sets the standard for the industry. It commits our members to delivering significant improvements in many of the areas identified in the OFT’s report. Nonetheless, we will continue to work proactively with the regulator and Government to identify further areas to enhance consumer protection.” The OFT’s revised position on the misuse of CPA can be found on its website.

 

Link: http://www.credittoday.co.uk/article/14589/online-news/oft-launches-formal-payday-investigations


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