Payday lenders under pressure as complaints rise - Loans - News - Moneyfacts

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Payday lenders under pressure as complaints rise

Payday lenders under pressure as complaints rise

Category: Loans

Updated: 14/12/2012
First Published: 14/12/2011

MONEYFACTS ARCHIVE
This article was correct at the time of publication. It is now over 6 months old so the content may be out of date.

A crackdown on payday lenders has been promised by the Office of Fair Trading (OFT) after complaints about the firms soared.

In a report to the Government, the regulator said the number of complaints received by the Consumer Direct helpline about the lenders had more than doubled to 1,535 in the first 11 months of the year, up from 700 in the whole of 2010.

The OFT is currently taking action against a number of unnamed payday lenders who have failed to adhere to guidance laid out by the office.

The websites of around 50 firms are now being checked by the regulator after some lenders were found to have disregarded rules laid down in relation to online advertising.

It has also been revealed that some payday lenders have not been checking whether borrowers can afford to take out a loan, do not properly explain the charges for going into arrears, and offer unclear explanations over loan terms and other contract details.

Figuring highest amongst the OFT's concerns, however, is the misuse of continuous payment authority, which permits lenders to take funds from a borrower's bank account even when an account is overdrawn.

The practice of rolling over loans is also prominent on the regulator's list of priorities.

Joanna Elson OBE, chief executive of the Money Advice Trust, has welcomed the crackdown, particularly given the increased appeal payday loans might currently have for some people.

"Many families are feeling the strain caused by low wage growth, rising unemployment and increasing prices," she explained.

"This is a situation ripe for payday loan companies to exploit, and so it is vital that struggling households are protected from the poor practices of these companies that will only land them further in debt.

"Payday loans have a habit of making a bad situation worse. They are often sold inappropriately, to people who should clearly not be taking on the burden of more credit and who are unlikely to be able to meet the terms of the agreement without incurring extra fees and charges.

"This can often lead to the borrower taking out more and more high cost credit, sending them further into a spiral of debt that benefits no one but the payday loan companies.

"We are pleased to see the OFT tackling poor practice in an industry that has been allowed too much free reign up to now."

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