Payday loan companies are to be investigated by the Competition Commission following concerns that they are competing on a speed and availability basis, rather than pricing.
The Office of Fair Trading (OFT) confirmed it had referred the payday loan industry to the commission stating that it had "reasonable grounds" to do so based on results of its review earlier this year, which uncovered "deep-rooted problems" in the way lenders operate.
The Competition Commission will look into suggestions from the OFT that firms are competing with one another based on the speed at which a loan approval can be made, which has led to suggestions that such practices involve skipping affordability checks leaving the customer at risk of falling behind with payments.
The commission will investigate four key areas of concern:
The Commission's investigation will also provide the Financial Conduct Authority (FCA) with fundamental evidence on which to base new rules when it acquires the regulation of the payday loan market with effect from April 2014.
Clive Maxwell, chief executive of the OFT, said: "Competition appears not to be working properly in the payday lending market, allowing firms to profit from making loans that cannot be paid back on time. We have seen evidence of financial loss and personal distress to many people.
"The Competition Commission can now conduct a detailed investigation to get to the root causes and, if necessary, use its far reaching powers to fix the payday lending market.
'In the meantime, we are using the powers available to us to crack down on payday lenders that breach the law or OFT guidance," he added.
Loan Calculator - Compare loan repayments and interest with our easy-to-use loan calculator Guide to Payday Loans Loan terminology – glossary and jargon buster
Disclaimer: Information is correct as of the date of publication (shown at the top of this article). Any products featured may be withdrawn by their provider or changed at any time.
Moneyfacts.co.uk will, like most other websites, place cookies onto your computer’s
hard drive. This includes tracking cookies.