The wait for action on unscrupulous Payday lenders goes on

Payday lending is back in the news today as two reports are released, one after the other, on changes to the regulatory architecture that oversees the industry. Given how much optimism there was last year with the FCA being given new powers, the meat of these reports will come as a disappointment.

Payday lending is back in the news today as two reports are released, one after the other, on changes to the regulatory architecture that oversees the industry.

The report by the Office for Fair Trading has said that the leading 50 payday lenders, accounting for 90 per cent of the payday market, has just 12 weeks to change its business practices or risk losing their consumer credit licenses.

As it is, payday lenders compete on the speed at which they lend cash out, not the cost of the credit they sell, which means that the incentive is for them to avoid carrying out sufficient credit checks.

The OFT today have said that it will report the payday lending market to the Competition Commission after finding evidence of irresponsibility between lenders.

In 2010 the OFT’s guidance for creditors on irresponsible lending pointed out that: “All assessments of affordability should involve a consideration of the potential for the credit commitment to adversely impact on the borrower’s financial situation, taking account of information that the creditor is aware of at the time the credit is granted.”

What the OFT now want to do is act upon the already existing regulation where previously it did not have the capacity to enforce its regulation.

In addition to assessments on affordability and credit checking, the other areas of non-compliance include:

. failing to explain adequately how payments will be collected

. using aggressive debt collection practices

. not treating borrowers in financial difficulty with forbearance.

It should be stressed that all of these issues are raised in the guidance set by the OFT, but it just hasn’t had the ability to ensure the regulation is met by the large swathes of new payday lenders on the high street.

This is where the newly created Financial Conduct Authority (FCA) comes in to play. The FCA was set up (it will start operating April 2014) to focus on enforcing current regulation.

Critics of the payday lending industry were given hope when late last year the government did a u-turn and added an amendment to the Financial Services Bill which gave the FCA the power to cap the cost of credit.

But now the government has flip flopped over this point again. A report commissioned by BIS to the Personal Finance Reseach Centre at the University of Bristol has found that a cap to the cost of credit could cause more of a detriment than the issue it sought to solve.

However BIS has said that in principle the debate will still be had on whether a cap will be appropriate. The PFRC research found that at the moment access to credit might shrink and be a problem for borrowers, but the implication is if other measures were carried out by the FCA then a cap may well be possible in the future.

This disappointing news has been offset by a commitment from the government to work more closely with the Advertising Standards Agency to further regulate the advertising of payday loans.

It is not certain what this will look like yet, but those commitments could include adding financial health warnings to adverts, regulating at what time adverts can be shown on TV, how spaced apart adverts are, and a further highlighting of the price a consumer would have to pay.

Given how much optimism there was last year with the FCA being given new powers, the meat of these reports will come as a disappointment.

It was enough for some that the FCA’s powers would begin to operate next year, when consumers are routinely being ripped off now – but the findings in today’s BIS report are surely a step backwards.

Yesterday Left Foot Forward asked why Wonga were invited to speak at a Labour policy meeting on household debt.

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6 Responses to “The wait for action on unscrupulous Payday lenders goes on”

  1. johnproblem

    Alas, one should never expect a piece of legislation which makes sense and can work, from our government. Other countries are robustly restricting the activities of payday lenders, but not here. Oh no.

  2. LB

    So lets see. These people are driven to payday lenders, because you take so much of their money they haven’t enough left.

    Meanwhile their fair share of the states debts is 250,000 pounds, rising at above inflation each year.

    So you’re just like Wonga and co, screwing people over for your own benefit.

  3. Newsbot9

    Ah yes, you keep claiming that. Keep on trying to socialise your costs, when you’re not paying tax, And no, they don’t own shares in Wonga, unlike you. And they’re not the ones taking ever-more of GDP into capital, which isn’t paying nearly enough tax.

  4. Will letuknow

    What is the point of this site? According to The UK Traffic Rank is 26,178. The thing with rankings is that the lower you go, the insignificance grows exponentially. That means nobody reads it. it should be shut down, it’s a total waste of time for anyone putting money in.

  5. Newsbot9

    “Wah, wah, I must silence any voices opposing mine”.

  6. Sally Nachelle

    Thanks for sharing this wonderful blog. It is true that people take out payday loans during financial emergencies. Most people feel shy to borrow money from their friends and relatives because money issues can ruin their family relations. This is why people try to avoid borrowing money from their close relatives and friends. In these situations, payday loans seem to be a good option to the people. You can get payday loan through internet also. But in most cases internet payday lending is illegal in many states of US. Most of the time people won’t get secure loans from the lenders due to low income level and poor credit score. But people can get payday loan very easily without any hassles. The main reason behind this is that the payday lenders don’t check the credit report of the consumers. The worst part of payday loan is that the interest is too high to afford. As a result it becomes difficult for borrowers to pay back the full amounts.

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