Warning for payday loan companies


The payday loan industry faces fines and closures if it does not improve the way it does business.

An interim report by the Office of Fair Trading (OFT) says that many payday lenders are not operating by the rules particularly when it comes to lending policy and the collection of debts.

The full report will be published in February when the OFT has completed its’ investigations, however the interim report, published yesterday, has fuelled concerns about the practices of some payday lenders.

Payday lender concerns

The interim report comes after the OFT visited the 50 largest payday loan lenders, but it will be expecting all 240 firms operating in this market, to improve practices, otherwise risk fines or even closure.

Among the concerns raised by the OFT were:

  • Payday lenders are not making suitable checks to confirm that a borrower can afford to repay a proposed loan
  • That too many loans are not repaid on time
  • That too many loans are extended, costing more in interest and arrangement fees
  • That lenders are too aggressive with people who fall behind with their payments

The interim OFT report comes after the Financial Ombudsman Service (FOS) reported a small increase in the number of complaints about payday loan lenders. The FOS reported that in the period April to September it received 271 new complaints about payday loan lenders; in the whole of the previous 12 months it received 296 complaints, indicating a year on year increase.

The majority of complaints to FOS were about the affordability of loans with 80% of complaints being upheld.

A spokesperson for the FOS said: “It’s perhaps inevitable that we’re seeing an increase in complaints about payday lenders, as consumers who are finding it hard to obtain credit search for new ways to make ends meet.

“Many of the people we speak to don’t want others to find out that they’re struggling financially. But it’s important to remember that if you have a problem with a credit provider, there is help out there if things go wrong.”

Continuous Payment Authority

The OFT are also worried about payday lenders using Continuous Payment Authorities (CPAs).

A CPA is a type of repayment agreement which means the payday lender automatically requests the monthly payment from the borrower’s bank account. It can mean that money is taken out of the account even if none is available, potentially forcing the borrower into a costly unauthorised overdraft.

The OFT are concerned that payday lenders are using CPAs without borrowers necessarily knowing how they work or how they can be brought to an end.
David Fisher, Director of Consumer Credit at the OFT, said: “Our report shows that a large number of payday loans are not repaid on time.”

“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.”